UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File Number 1-32414
W&T OFFSHORE, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Texas |
|
72-1121985 |
(State of incorporation) |
|
(IRS Employer Identification Number) |
|
|
|
5718 Westheimer Road, Suite 700, Houston, Texas |
|
77057-5745 |
(Address of principal executive offices) |
|
(Zip Code) |
(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.
|
|
|
|
Large accelerated filer ☐ |
|
Accelerated filer |
☑ |
Non-accelerated filer ☐ |
|
Smaller reporting company |
☐ |
|
|
Emerging growth company |
☐ |
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. ☐
Securities registered pursuant to section 12(b) of the Act:
|
|
|
|
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, par value $0.00001 |
|
WTI |
|
New York Stock Exchange |
As of July 31, 2021 there were 142,367,242 shares outstanding of the registrant’s common stock, par value $0.00001.
W&T OFFSHORE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
|
|
Page |
1 |
||
|
|
|
1 |
||
Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 |
1 |
|
2 |
||
3 |
||
4 |
||
5 |
||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
|
37 |
||
37 |
||
|
|
|
38 |
||
38 |
||
38 |
||
39 |
||
|
|
|
41 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
2021 |
|
2020 |
||
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
209,148 |
|
$ |
43,726 |
Receivables: |
|
|
|
|
|
|
Oil and natural gas sales |
|
|
50,220 |
|
|
38,830 |
Joint interest, net |
|
|
11,750 |
|
|
10,840 |
Total receivables |
|
|
61,970 |
|
|
49,670 |
Prepaid expenses and other assets (Note 1) |
|
|
30,705 |
|
|
13,832 |
Total current assets |
|
|
301,823 |
|
|
107,228 |
|
|
|
|
|
|
|
Oil and natural gas properties and other, net (Note 1) |
|
|
657,657 |
|
|
686,878 |
|
|
|
|
|
|
|
Restricted deposits for asset retirement obligations |
|
|
29,820 |
|
|
29,675 |
Deferred income taxes |
|
|
107,337 |
|
|
94,331 |
Other assets (Note 1) |
|
|
42,395 |
|
|
22,470 |
Total assets |
|
$ |
1,139,032 |
|
$ |
940,582 |
Liabilities and Shareholders’ Deficit |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
54,624 |
|
$ |
48,612 |
Undistributed oil and natural gas proceeds |
|
|
28,688 |
|
|
19,167 |
Asset retirement obligations |
|
|
23,888 |
|
|
17,188 |
Accrued liabilities (Note 1) |
|
|
100,363 |
|
|
29,880 |
Current portion of long-term debt |
|
|
36,771 |
|
|
— |
Income tax payable |
|
|
63 |
|
|
153 |
Total current liabilities |
|
|
244,397 |
|
|
115,000 |
Long-term debt (Note 2) |
|
|
|
|
|
|
Principal |
|
|
730,689 |
|
|
632,460 |
Unamortized debt issuance costs |
|
|
(12,773) |
|
|
(7,174) |
Long-term debt, net |
|
|
717,916 |
|
|
625,286 |
|
|
|
|
|
|
|
Asset retirement obligations, less current portion |
|
|
380,115 |
|
|
375,516 |
Other liabilities (Note 1) |
|
|
56,259 |
|
|
32,938 |
Deferred income taxes |
|
|
128 |
|
|
128 |
Commitments and contingencies (Note 11) |
|
|
— |
|
|
— |
Shareholders’ deficit: |
|
|
|
|
|
|
Preferred stock, $0.00001 par value; 20,000 shares authorized; 0 issued at June 30, 2021 and December 31, 2020 |
|
|
— |
|
|
— |
Common stock, $0.00001 par value; 200,000 shares authorized; 145,236 issued and 142,367 outstanding at June 30, 2021; 145,174 issued and 142,305 outstanding at December 31, 2020 |
|
|
1 |
|
|
1 |
Additional paid-in capital |
|
|
551,260 |
|
|
550,339 |
Retained deficit |
|
|
(786,877) |
|
|
(734,459) |
Treasury stock, at cost; 2,869 shares at June 30, 2021 and December 31, 2020 |
|
|
(24,167) |
|
|
(24,167) |
Total shareholders’ deficit |
|
|
(259,783) |
|
|
(208,286) |
Total liabilities and shareholders’ deficit |
|
$ |
1,139,032 |
|
$ |
940,582 |
See Notes to Condensed Consolidated Financial Statements
1
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
88,013 |
|
$ |
30,645 |
|
$ |
166,153 |
|
$ |
115,295 |
NGLs |
|
|
8,833 |
|
|
1,917 |
|
|
18,193 |
|
|
8,369 |
Natural gas |
|
|
32,470 |
|
|
21,364 |
|
|
68,679 |
|
|
50,664 |
Other |
|
|
3,512 |
|
|
1,315 |
|
|
5,451 |
|
|
5,041 |
Total revenues |
|
|
132,828 |
|
|
55,241 |
|
|
258,476 |
|
|
179,369 |
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
47,552 |
|
|
28,313 |
|
|
89,909 |
|
|
83,088 |
Production taxes |
|
|
1,956 |
|
|
1,143 |
|
|
3,952 |
|
|
2,059 |
Gathering and transportation |
|
|
4,824 |
|
|
3,301 |
|
|
9,143 |
|
|
8,750 |
Depreciation, depletion, amortization and accretion |
|
|
30,952 |
|
|
29,483 |
|
|
57,589 |
|
|
68,609 |
General and administrative expenses |
|
|
13,986 |
|
|
5,628 |
|
|
24,698 |
|
|
19,591 |
Derivative loss (gain) |
|
|
81,440 |
|
|
15,414 |
|
|
106,020 |
|
|
(46,498) |
Total costs and expenses |
|
|
180,710 |
|
|
83,282 |
|
|
291,311 |
|
|
135,599 |
Operating (loss) income |
|
|
(47,882) |
|
|
(28,041) |
|
|
(32,835) |
|
|
43,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
16,530 |
|
|
14,816 |
|
|
31,564 |
|
|
31,926 |
Gain on debt transactions |
|
|
— |
|
|
(28,968) |
|
|
— |
|
|
(47,469) |
Other expense, net |
|
|
— |
|
|
751 |
|
|
963 |
|
|
1,474 |
(Loss) income before income taxes |
|
|
(64,412) |
|
|
(14,640) |
|
|
(65,362) |
|
|
57,839 |
Income tax benefit |
|
|
(12,740) |
|
|
(8,736) |
|
|
(12,944) |
|
|
(2,237) |
Net (loss) income |
|
$ |
(51,672) |
|
$ |
(5,904) |
|
$ |
(52,418) |
|
$ |
60,076 |
Basic and diluted (loss) earnings per common share |
|
$ |
(0.36) |
|
$ |
(0.04) |
|
$ |
(0.37) |
|
$ |
0.42 |
See Notes to Condensed Consolidated Financial Statements.
2
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional |
|
|
|
|
|
|
|
|
|
Total |
|||||
|
|
Outstanding |
|
Paid-In |
|
Retained |
|
Treasury Stock |
|
Shareholders’ |
|||||||||
|
|
Shares |
|
Value |
|
Capital |
|
Deficit |
|
Shares |
|
Value |
|
Deficit |
|||||
Balances at March 31, 2020 |
|
141,669 |
|
$ |
1 |
|
$ |
548,098 |
|
$ |
(706,269) |
|
2,869 |
|
$ |
(24,167) |
|
$ |
(182,337) |
Share-based compensation |
|
— |
|
|
— |
|
|
1,019 |
|
|
— |
|
— |
|
|
— |
|
|
1,019 |
Stock Issued |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(5,904) |
|
— |
|
|
— |
|
|
(5,904) |
Balances at June 30, 2020 |
|
141,669 |
|
$ |
1 |
|
$ |
549,117 |
|
$ |
(712,173) |
|
2,869 |
|
$ |
(24,167) |
|
$ |
(187,222) |
See Notes to Condensed Consolidated Financial Statements
3
W&T OFFSHORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||
|
|
2021 |
|
2020 |
||
Operating activities: |
|
|
|
|
|
|
Net (loss) income |
|
$ |
(52,418) |
|
$ |
60,076 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation, depletion, amortization and accretion |
|
|
57,589 |
|
|
68,609 |
Amortization of debt items and other items |
|
|
2,967 |
|
|
3,682 |
Share-based compensation |
|
|
921 |
|
|
2,067 |
Derivative loss (gain) |
|
|
106,020 |
|
|
(46,498) |
Derivative cash (payments) receipts, net |
|
|
(41,130) |
|
|
37,566 |
Gain on debt transactions |
|
|
— |
|
|
(47,469) |
Deferred income taxes |
|
|
(13,006) |
|
|
(2,207) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Oil and natural gas receivables |
|
|
(11,390) |
|
|
34,984 |
Joint interest receivables |
|
|
(910) |
|
|
4,743 |
Prepaid expenses and other assets |
|
|
(17,605) |
|
|
3,505 |
Income tax |
|
|
(92) |
|
|
2,008 |
Asset retirement obligation settlements |
|
|
(11,213) |
|
|
(2,164) |
Cash advances from JV partners |
|
|
(3,925) |
|
|
5,850 |
Accounts payable, accrued liabilities and other |
|
|
30,386 |
|
|
(31,274) |
Net cash provided by operating activities |
|
|
46,194 |
|
|
93,478 |
Investing activities: |
|
|
|
|
|
|
Investment in oil and natural gas properties and equipment |
|
|
(5,856) |
|
|
(14,138) |
Changes in operating assets and liabilities associated with investing activities |
|
|
(3,078) |
|
|
(25,811) |
Acquisition of property interests |
|
|
— |
|
|
(456) |
Purchases of furniture, fixtures and other |
|
|
2 |
|
|
(70) |
Net cash used in investing activities |
|
|
(8,932) |
|
|
(40,475) |
Financing activities: |
|
|
|
|
|
|
Borrowings on credit facility |
|
|
— |
|
|
25,000 |
Repayments on credit facility |
|
|
(80,000) |
|
|
(50,000) |
Purchase of Senior Second Lien Notes |
|
|
— |
|
|
(23,930) |
Proceeds from Term Loan |
|
|
215,000 |
|
|
— |
Debt issuance costs and other |
|
|
(6,840) |
|
|
— |
Net cash provided by (used in) financing activities |
|
|
128,160 |
|
|
(48,930) |
Increase in cash and cash equivalents |
|
|
165,422 |
|
|
4,073 |
Cash and cash equivalents, beginning of period |
|
|
43,726 |
|
|
32,433 |
Cash and cash equivalents, end of period |
|
$ |
209,148 |
|
$ |
36,506 |
See Notes to Condensed Consolidated Financial Statements.
4
1. Basis of Presentation
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 subsidiaries, W & T Energy VI, LLC, Aquasition LLC, and Aquasition II, LLC, and through our proportionately consolidated interest in Monza Energy LLC (“Monza”), as described in more detail in Note 5.
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-K for the year ended December 31, 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.
Accounting Standards Updates effective January 1, 2021
Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, Income 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 740 and by clarifying and amending existing guidance. ASU 2019-12 is effective for annual and interim financial statement periods beginning after December 15, 2020. Adoption of the amendment did not have a material impact on our financial statements or disclosures.
Revenue Recognition. We recognize revenue from the sale of crude oil, 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.
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 six months ended June 30, 2021 which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations.
5
Credit Risk and Allowance for Credit Losses. Our revenue has been concentrated in certain major oil and gas companies. For the six months ended June 30, 2021, and the year ended December 31, 2020, approximately 64% and 62%, respectively, of our revenue was from three 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 related to joint interest billings are reported on the Condensed Consolidated Balance Sheets net of the allowance for credit losses. The allowance for credit losses was $9.1 million as of June 30, 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):
(1) |
Includes closed contracts which have not yet settled. |
Oil and Natural Gas Properties and Other, Net. 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):
Other Assets (long-term). The major categories are presented in the following table (in thousands):
6
Accrued Liabilities. The major categories are presented in the following table (in thousands):
Paycheck Protection Program ("PPP"). On April 15, 2020, the Company received $8.4 million under the PPP offered by the U.S. Small Business Administration ("SBA"). We applied the guidance under IAS 20 and accounted for the PPP as a government grant. The Company submitted an application to the SBA on August 20, 2020, requesting that the PPP funds received be applied to specific covered and non-covered payroll costs. On June 11, 2021, we received notification that the SBA accepted our application and approved forgiveness of our PPP; therefore, we will not be required to repay the grant.
Other Liabilities (long-term). The major categories are presented in the following table (in thousands):
2. Debt
The components of our debt are presented in the following table (in thousands):
7
Current Portion of Long-Term Debt
As of June 30, 2021, the current portion of long-term debt of $36.8 million represented principle payments due within one year on the Term Loan (defined below).
Term Loan (Subsidiary Credit Agreement)
On May 19, 2021, Aquasition LLC (“A-I LLC”) and Aquasition II LLC (“A-II LLC”) (collectively, the “Borrowers”), both Delaware limited liability companies and indirect, wholly-owned subsidiaries of W&T Offshore, Inc., entered into a credit agreement (the “Subsidiary Credit Agreement”) providing for a term loan in an aggregate principal amount equal to $215.0 million (the “Term Loan”). The Term Loan requires quarterly amortization payments commencing September 30, 2021. The Term Loan bears interest at a fixed rate of 7% per annum and will mature on May 19, 2028. The Term Loan is non-recourse to the Company and any subsidiaries other than the Borrowers and the subsidiary that owns the equity in the Borrowers, and is secured by the first lien security interests in the equity of the Borrowers and a first lien mortgage security interest and mortgages on certain assets of the Borrowers (the Mobile Bay Properties, defined below).
In exchange for the net cash proceeds received by the Borrowers from the Term Loan, the Company assigned to (a) A-I LLC all of its interests in certain oil and gas leasehold interests and associated wells and units located in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, Mobile Bay region (such assets, the “Mobile Bay Properties”) and (b) A-II LLC its interest in certain gathering and processing assets located (i) in State of Alabama waters and U.S. federal waters in the offshore Gulf of Mexico, Mobile Bay region and (ii) onshore near Mobile, Alabama, including offshore gathering pipelines, an onshore crude oil treating and sweetening facility, an onshore gathering pipeline, and associated assets (such assets, the “Midstream Assets”). A portion of the proceeds to the Company was used to repay the $48.0 million outstanding balance on its reserve-based lending facility under the Company Credit Agreement (defined below), with the majority of the proceeds to W&T expected to be used for general corporate purposes, including oil and gas acquisitions, development activities, and other opportunities to grow the Company’s broader asset base. We refer to the transactions contemplated by the Subsidiary Credit Agreement, including the assignment of the Mobile Bay Properties to A-I LLC and the assignment of the Midstream Assets to A-II LLC as the “Mobile Bay Transaction”.
For information about Mobile Bay Transaction refer to Note 4, Mobile Bay Transaction.
Company Credit Agreement
On October 18, 2018, we entered into the Sixth Amended and Restated Credit Agreement (as amended, the “Company Credit Agreement”), which matures on October 18, 2022. On May 19, 2021, we entered into a Waiver, Consent to Second Amendment to Intercreditor Agreement and Sixth Amendment to Sixth Amended and Restated Credit Agreement (the “Sixth Amendment”) which amended the Company Credit Agreement. The Sixth Amendment, among other things, (i) amended the Company Credit Agreement to effectuate the Mobile Bay Transaction (as discussed under Term Loan above and Note 4, Mobile Bay Transaction below) by specifically permitting the Mobile Bay Transaction and related transactions under certain covenants and (ii) consented to and waived certain technical defaults arising from the formation of certain company subsidiaries that were formed in advance of, and in order to effectuate, the consummation of the Mobile Bay Transaction and related transactions. On July 15, 2021, the Company entered into a Waiver and Seventh Amendment to Sixth Amended and Restated Credit Agreement (the “Seventh Amendment”) dated effective June 30, 2021, which further amended the Company Credit Agreement.
8
The primary terms and covenants associated with the Company Credit Agreement as of June 30, 2021, as amended by the Sixth and Seventh Amendments, are as follows, with capitalized terms defined under the Company Credit Agreement:
· |
The borrowing base was $190.0 million, subject to the next redetermination on or about October 1, 2021. |
· |
Letters of credit may be issued in amounts up to $30.0 million, provided availability under the Company Credit Agreement exists. |
· |
From the period ended June 30, 2020 through the period ended December 31, 2021 (the "Waiver Period"), the Company is not required to comply with the Leverage Ratio covenant. The Leverage Ratio, as defined in the Company Credit Agreement, is limited to 3.00 to 1.00 for quarters ending March 31, 2022 and thereafter. |
· |
During the Waiver Period, the Company will be required to maintain a 2.00 to 1.00 ratio limit of first lien debt outstanding under the Company Credit Agreement on the last day of the most recent quarter to EBITDAX for the trailing four quarters. |
·The Current Ratio, as defined in the Company Credit Agreement, must be maintained at greater than 1.00 to 1.00.
Availability under the Company Credit Agreement is subject to semi-annual redeterminations of our borrowing base and, the next scheduled redetermination is to occur on or about October 1, 2021. Subsequent to the October 2021 redetermination, 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 Company Credit Agreement. The Company currently has no borrowings outstanding under the Company Credit Agreement and has agreed to not to make borrowings under the Company Credit Agreement unless and until the next semi-annual redetermination of our borrowing base occurs and the Company complies with certain revised hedging requirements.
The Company used a portion of the proceeds from Mobile Bay Transaction to repay the $48.0 million outstanding balance on its reserve-based lending facility under the Company Credit Agreement. All liens on the Mobile Bay Properties granted to secure obligations under the Company Credit Agreement were released in connection with the transfer of such assets to Borrowers. The Company Credit Agreement is collateralized by a first priority lien on properties constituting at least 90% of the total proved reserves of the Company as set forth on reserve reports required to be delivered under the Company Credit Agreement and certain personal property, excluding those liens released in the Mobile Bay Transaction as described above.
As of June 30, 2021 and December 31, 2020, we had $4.4 million of letters of credit issued and outstanding under the Company Credit Agreement. No borrowings under the Company Credit Agreement were outstanding as of June 30, 2021 and $80.0 million in borrowings were outstanding under the Company Credit Agreement as of December 31, 2020. The annualized interest rate on borrowings outstanding for the six months ended June 30, 2021 was 3.2%, which excludes debt issuance costs, commitment fees and other fees.
9
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 10.3%, which 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 year ended December 31, 2020, we acquired $72.5 million in principal of our outstanding Senior Second Lien Notes for $23.9 million and recorded a non-cash gain on purchase of debt of $47.5 million, which included a reduction of $1.1 million related to the write-off of unamortized debt issuance costs. No such transactions were completed during the three and six months ended June 30, 2021. As a result of these purchases, $552.5 million in principal amount of Senior Second Lien Notes remains issued and outstanding as of June 30, 2021 and December 31, 2020.
The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the Company Credit Agreement, which does not include the Mobile Bay Properties and the related Midstream Assets. 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 June 30, 2021 and for all prior measurement periods, we were in compliance with all applicable covenants of the Company Credit Agreement and the Indenture. The Seventh Amendment revised certain covenants under the Company Credit Agreement related to hedging our future production and waived compliance with such requirements, including the requirement that certain existing hedge transactions be unwound or terminated, until our next semi-annual borrowing base redetermination occurs.
Fair Value Measurements
For information about fair value measurements of our long-term debt, refer to Note 3.
3. Fair Value Measurements
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 7 Derivative Financial Instruments, for additional information on our derivative financial instruments.
10
The following table presents the fair value of our open derivative financial instruments (in thousands):
Debt
The fair value of the Term Loan was measured using a discounted cash flows model and current market rates. The net value of our debt under the Company 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 debt was classified as Level 2 within the valuation hierarchy. See Note 2 – Debt for additional information on our debt.
The following table presents the net value and fair value of our long-term debt (in thousands):
4. Mobile Bay Transaction
On May 19, 2021, the Company’s wholly-owned special purpose vehicles (the “SPVs”), A-I LLC and A-II LLC or the Borrowers, entered into the Subsidiary Credit Agreement providing for the Term Loan in an aggregate principal amount equal to $215.0 million. Proceeds of the Term Loan were used by the Borrowers to (i) fund the acquisition of the Mobile Bay Properties and the Midstream Assets from the Company and (ii) pay fees, commissions and expenses in connection with the transactions contemplated by the Subsidiary Credit Agreement and the other related loan documents, including to enter into certain swap and put derivative contracts described in more detail under Note 7 – Derivative Financial Instruments, of this Quarterly Report.
As part of the Mobile Bay Transaction, the SPVs entered into a management services agreement (the “Services Agreement”) with the Company, pursuant to which the Company will provide (a) certain operational and management services for (I) the Mobile Bay Properties and (II) the Midstream Assets and (b) certain corporate, general and administrative services for A-I LLC and A-II LLC (collectively in this capacity, the “Services Recipient”). Under the Services Agreement, the Company will indemnify the Services Recipient with respect to claims, losses or liabilities incurred by the Services Agreement Parties that relate to personal injury or death or property damage of the Company, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Services Recipient. The Services Recipient will indemnify the Company with respect to claims, losses or liabilities incurred by the Company that relate to personal injury or death of the Services Recipient or property damage of the Services Recipient, in each case, arising out of performance of the Services Agreement, except to the extent of the gross negligence or willful misconduct of the Company. The Services Agreement will terminate upon the earlier of (a) termination of the Subsidiary Credit Agreement and payment and satisfaction of all obligations thereunder or (b) the exercise of certain remedies by the secured parties under the Subsidiary Credit Agreement and the realization by such secured parties upon any of the collateral under the Subsidiary Credit Agreement.
11
The SPVs are wholly-owned subsidiaries of the Company; however, the assets of the SPVs will not be available to satisfy the debt or contractual obligations of any non-SPV entities, including debt securities or other contractual obligations of W&T Offshore, Inc., and the SPVs do not bear any liability for the indebtedness or other contractual obligations of any non-SPVs, and vice versa. As of June 30, 2021, the book value of the assets of the SPVs were $292.4 million.
5. Joint Venture Drilling Program
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. 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.
The members of Monza are made up of third-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-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 June 30, 2021, nine wells have been completed. In 2020, one well was drilled to target depth, which we expect to be completed in the fourth quarter of 2021. W&T is the operator for seven of the nine wells completed through June 30, 2021.
Through June 30, 2021, members of Monza made partner capital contributions, including our contributions of working interest in the drilling projects, to Monza totaling $302.4 million and received cash distributions totaling $77.9 million. Our net contribution to Monza, reduced by distributions received, as of June 30, 2021 was $51.6 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.
12
Consolidation and Carrying Amounts
Our interest in Monza is considered to be a variable interest that we account for using proportional consolidation. Through June 30, 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 beneficiary of Monza. As of June 30, 2021, in the Condensed Consolidated Balance Sheet, we recorded $6.6 million, net, in Oil and natural gas properties and other, net, $4.2 million in Other assets, $0.3 million in Asset Retirement Obligations ("ARO") and $1.7 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities. As of December 31, 2020, in the Condensed Consolidated Balance Sheet, we recorded $9.9 million, net, in Oil and natural gas properties and other, net, $1.8 million in Other assets, $0.2 million in ARO and $1.3 million, net, increase in working capital in connection with our proportional interest in Monza’s assets and liabilities. Additionally, during the six months ended June 30, 2021 and during the year ended December 31, 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 June 30, 2021 and December 31, 2020 were $3.4 million and $7.3 million, respectively, which are included in the Condensed Consolidated Balance Sheet in Advances from joint interest partners. For the six months ended June 30, 2021, in the Condensed Consolidated Statement of Operations, we recorded $5.5 million in Total revenues and $6.7 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations. For the year ended December 31, 2020, in the Condensed Consolidated Statement of Operations, we recorded $8.4 million in Total revenues and, $12.1 million in Operating costs and expenses in connection with our proportional interest in Monza’s operations.
6. Asset Retirement Obligations
Our 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):
7. Derivative Financial Instruments
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 Company Credit Agreement or Term Loan. 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 are recognized 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.
13
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 following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of June 30, 2021:
(1) |
Bbls = Barrels |
(2) MMbtu = Million British Thermal Units
(3) These contracts were entered into by the Company’s wholly owned subsidiary, A-I LLC, in conjunction with the Mobile Bay Transaction (see Note 4 Mobile Bay Transaction).
14
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.
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):
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):
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||
|
|
2021 |
|
2020 |
||
Derivative loss (gain) |
|
$ |
106,020 |
|
$ |
(46,498) |
Derivative cash (payments) receipts, net |
|
|
(41,130) |
|
|
37,566 |
8. Share-Based Awards and Cash-Based Awards
Share-Based Awards to Employees
The W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended from time to time, the “Plan”) was approved by our shareholders in 2010. Under the Plan, the Company may issue, subject to the approval of the Board of Directors, stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, performance units or shares, cash awards, substitute awards or any combination of the foregoing to employees, directors and consultants.
As of June 30, 2021, there were 10,347,591 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-one basis when awards 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 awards in stock or cash, or a combination of stock and cash. The Company expects to settle outstanding awards, discussed below, that vest in the future using shares of common stock.
15
Restricted Stock Units (“RSUs”). RSUs currently outstanding relate to the 2021 and 2019 grants. During the six months ended June 30, 2021, the Company granted RSUs under the plan to certain employees. No RSUs were granted in 2020. The 2021 RSUs granted are a long-term compensation component, subject to service conditions, with one-third of the award vesting each year on January 1, 2022, 2023, and 2024, respectively.
The 2019 grants were subject to predetermined performance criteria applied against the applicable performance period. All of the 2019 RSUs currently outstanding are also subject to employment-based criteria and, subject to the satisfaction of the service conditions, vesting of the outstanding 2019 RSUs will occur in December 2021.
A summary of activity related to RSUs during the three months ended June 30, 2021 is as follows:
For the outstanding RSUs issued to the eligible employees as of June 30, 2021, vesting is expected to occur as follows (subject to forfeitures):
|
|
|
|
|
Restricted |
|
|
Shares |
2021 |
|
743,808 |
2022 |
|
232,767 |
2023 |
|
232,767 |
2024 |
|
232,767 |
Total |
|
1,442,109 |
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 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.
Performance Share Units (“PSUs”). During the six months ended June 30, 2021, the Company granted PSUs under the plan to certain employees. The PSUs are RSU awards granted subject to performance criteria. The performance criteria relates to the evaluation of the Company’s total shareholder return (“TSR”) ranking against peer companies’ TSR for the applicable performance period (2021) and service-based criteria. TSR is determined based on the change in the entity’s stock price plus dividends for the applicable performance period. Subsequent to the performance period, the PSUs will continue to be subject to service-based criteria with vesting occurring on October 1, 2023.
16
A summary of activity related to PSUs during the three months ended June 30, 2021 is as follows:
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. All PSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period. The grant date fair value of the PSUs was determined through the use of the Monte Carlo simulation method. This method requires the use of highly subjective assumptions. Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined Peer Group companies’ stock, risk free rate of return and cross-correlations between the Company and our Peer Group companies. The valuation model assumes dividends, if any, are immediately reinvested. The grant date fair value of the PSUs granted during the six months ended June 30 2021, is $2.2 million. The following table summarizes the assumptions used to calculate the grant date fair value of the PSUs granted:
|
|
|
|
|
|
2021 Grant Date |
|
|
|
June 28 |
|
Expected term for performance period (in years) |
|
0.5 |
|
Expected volatility |
|
67.9 |
% |
Risk-free interest rate |
|
0.1 |
% |
Share-Based 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 the six months ended June 30, 2021, and during the year ended December 31, 2020. During the second quarter of 2020, our shareholders approved increasing the shares available under the Director Compensation Plan by 500,000 shares. As of June 30, 2021, there were 410,742 shares of common stock available for issuance in satisfaction of awards under the Director Compensation Plan. The shares available are reduced on a one-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. No 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.
17
A summary of activity related to Restricted Shares during the six months ended June 30, 2021 is as follows:
Subject to the satisfaction of the service conditions, the outstanding Restricted Shares issued to the non-employee directors as of June 30, 2021 are eligible to vest in 2022.
Share-Based Compensation Expense
Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations. 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):
Unrecognized Share-Based Compensation Expense
As of June 30, 2021, unrecognized share-based compensation expense related to our awards of RSUs, PSUs, and Restricted Shares was $3.9 million, $2.2 million, and $0.2 million, respectively. Unrecognized share-based compensation expense will be recognized through December 2023 for RSUs, September 2023 for PSUs, and April 2022 for Restricted Shares.
Cash-Based Incentive Compensation
In addition to share-based compensation, both short-term and long-term cash-based incentive awards were granted under the Plan to all eligible employees in 2021.
18
Short-term Cash-Based Incentive Compensation. There are two components of the short-term cash-based incentive award granted during the six months ended June 30, 2021.
● | The first short-term, cash-based award granted in February 2021 was discretionary and subject only to continued employment on the payment dates. The 2021 discretionary bonus award was paid in equal installments on March 15, 2021 and April 15, 2021, to substantially all employees subject to employment on those dates. Incentive compensation expense of $3.8 million and $7.6 million was recognized during the three and six months ended June 30, 2021, respectively, related to these awards. |
● | The second short-term, cash-based award granted in June 2021 is subject to Company performance-based criteria and individual performance criteria. Incentive compensation expense is based on estimates of Company metrics for full-year 2021 and is being recognized during the 2021 service period. Incentive compensation expense for this award was not material during the six months ended June 30, 2021. |
No cash-based incentive awards were granted in 2020, and therefore, no cash-based incentive compensation expense for 2020 was recorded.
Long-term Cash-Based Incentive Compensation.
The 2021 long-term, cash-based awards (“Cash Awards”) were granted in June 2021 and are subject to the same performance-based criteria as the PSU’s noted above. The Company’s TSR ranking against peer companies will be evaluated for the performance period of 2021. Subsequent to the performance period, the Cash Awards will continue to be subject to service-based criteria with vesting occurring on October 1, 2023.
These Cash Awards are accounted for as liability awards and are measured at fair value each reporting date. We recognize compensation cost for share-based payments to employees over the service period from June 28, 2021 through October 1, 2023. The reporting date fair value of the awards was determined through the use of the Monte Carlo simulation method. This method requires the use of highly subjective assumptions. Our key assumptions in the method include the price and the expected volatility of our stock and our self-determined peer group companies’ stock, risk-free rate of return, cross-correlations between the Company and our peer group companies, and an appropriate discount rate. The valuation model assumes dividends are immediately reinvested. The fair value of the awards as of June 30, 2021, is $2.2 million. As of June 30, 2021, unrecognized compensation expense related to these awards was $2.2 million. The following table summarizes the assumptions used to calculate the fair value of the outstanding long-term Cash Awards as of June 30, 2021:
19
A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):
(1) | Includes adjustments of accruals to actual payments. |
9. Income Taxes
Tax Benefit and Tax Rate. Income tax benefit for the three months ended June 30, 2021 and 2020 was $12.7 and $8.7 million, respectively. For the six months ended June 30, 2021 and 2020, income tax benefit was $12.9 million and $2.2 million, respectively. For the three and six months ended June 30, 2021, our effective tax rate differed from the statutory Federal tax rate primarily by the impact of state income taxes. For the three and six months ended June 30, 2020, our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded as a result of to the enactment of the 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). Our effective tax rate was 19.8% for both the three and six months ended June 30, 2021 and 59.7% and (3.9%) for the three and six months ended June 30, 2020, respectively.
Calculation of Interim Provision for Income Tax. Historically, we have calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to income (loss) for the interim period. In the second quarter of 2021, we concluded that we could not calculate a reliable estimate of our annual effective tax rate. Accordingly, we computed the effective tax rate for the six-month period ending June 30, 2021 using actual results.
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 June 30, 2021 and December 31, 2020, our valuation allowance was $22.8 million and $22.4 million, respectively, and relates primarily to state net operating losses and the disallowed interest expense limitation carryover.
20
Income Taxes Receivable, Refunds and Payments. As of June 30, 2021 and December 31, 2020, we did not have any outstanding current income taxes receivable. During the three and six months ended June 30, 2021, we did not receive any income tax refunds or make any income tax payments of significance. During the three and six months ended June 30, 2020 we received an income tax refund of $1.9 million. The refund related primarily to a net operating loss (“NOL”) carryback claim for 2017 that was carried back to prior years.
The tax years 2017 through 2020 remain open to examination by the tax jurisdictions to which we are subject.
10. Earnings Per Share
The following table presents the calculation of basic and diluted (loss) earnings per common share (in thousands, except per share amounts):
11. Contingencies
Appeal with the Office of Natural Resources Revenue (“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 ultimately led to our posting a bond in the amount of $7.2 million and cash collateral of $6.9 million with the surety in order to appeal the IBLA decision, of which the cash collateral held by the surety was subsequently returned during the first quarter of 2020. We have continued to pursue our legal rights and, at present, the case is in front of the U.S. District Court for the Eastern District of Louisiana where both parties have filed cross-motions for summary judgment and opposition briefs. 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 district court’s ruling on the merits. In compliance with the ONRR’s request for W&T to periodically increase the surety posted in the appeal to cover pre-and post judgement interest, the penal sum of the bond posted is currently $8.2 million.
21
Royalties – “Unbundling” Initiative. In 2016, the ONRR 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 that processed our gas. In the second quarter of 2015, pursuant to the initiative, we received requests from the ONRR for additional data regarding our transportation and processing allowances on natural gas production related to a specific processing plant. We also received a preliminary determination notice from the ONRR asserting that our allocation of certain processing costs and plant fuel use at another processing plant was not allowed as deductions in the determination of royalties owed under Federal oil and gas leases. We have submitted revised calculations covering certain plants and time periods to the ONRR. As of the filing date of this Form 10-Q, we have not received a response from the ONRR related to our submissions. These open ONRR unbundling reviews, and any further similar reviews, could ultimately result in an order for payment of additional royalties under our Federal oil and gas leases for current and prior periods. While the amounts paid for the three and six months ended June 30, 2021 and 2020 were immaterial, we are not able to determine the range of any additional royalties or, if and when assessed, whether such amounts would be material.
Notices of Proposed Civil Penalty Assessment. In January 2021, we executed a Settlement Agreement with the Bureau of Safety and Environmental Enforcement (“BSEE”) which resolved nine pending civil penalties issued by BSEE. The civil penalties pertained to Incidents of Noncompliance (“INCs”) issued by BSEE alleging regulatory non-compliance at separate offshore locations on various dates between July 2012 and January 2018, with the proposed civil penalty amounts totaling $7.7 million. Under the Settlement Agreement, W&T will pay a total of $720,000 in three annual installments. The first installment was paid in March 2021. In addition, W&T committed to implement a Safety Improvement Plan with various deliverables due over a period ending in 2022. During the three months ended June 30, 2021, we did not pay any civil penalties to BSEE related to newly issued INCs.
Other Claims. We are a party to various pending or threatened claims and complaints seeking damages or other remedies concerning our commercial operations and other matters in the ordinary course of our business. In addition, claims or contingencies may arise related to matters occurring prior to our acquisition of properties or related to matters occurring subsequent to our sale of properties. In certain cases, we have indemnified the sellers of properties we have acquired, and in other cases, we have indemnified the buyers of properties we have sold. We are also subject to federal and state administrative proceedings conducted in the ordinary course of business including matters related to alleged royalty underpayments on certain federal-owned properties. Although we can give no assurance about the outcome of pending legal and federal or state administrative proceedings and the effect such an outcome may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
12. Subsequent Events
As described in more detail in Note 2 – Debt, on July 15, 2021, the Company entered into a Waiver and Seventh Amendment to Sixth Amended and Restated Credit Agreement dated effective June 30, 2021, which further amended the Company Credit Agreement and waived certain hedging transaction requirements.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the notes to those financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”), as well as our audited Consolidated Financial Statements and the notes thereto in our 2020 Annual Report and the Related Management’s Discussion and Analysis of Financial Condition and the Results of Operations included in Part II, Item 7 of our 2020 Annual Report on Form 10-K (the “2020 Annual Report”).
Forward-Looking Statements
The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast,” “may,” “objective,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
These forward-looking statements are subject risks, uncertainties and assumptions, most of which are difficult to predict and many of which are beyond our control. If the risks or uncertainties materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and assumptions. These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, estimates, expected future developments and other factors we believe are appropriate in the circumstances. Known material risks that may affect our financial condition and results of operations are discussed in Item 1A, Risk Factors, and market risks are discussed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 2020 Annual Report, and may be discussed or updated from time to time in subsequent reports filed with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
Overview
We are an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of June 2021, we hold working interests in 41 offshore fields in federal and state waters (40 fields producing and 1 field capable of producing, with 33 fields in federal waters and 8 in state waters). We currently have under lease approximately 621,700 gross acres (424,400 net acres) spanning across the outer continental shelf (“OCS”) off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama State waters, 426,800 gross acres on the conventional shelf and approximately 186,900 gross acres in the deepwater. A majority of our daily production is derived from wells we operate. Our interests in fields, leases, structures and equipment are primarily owned by W&T Offshore, Inc. and our wholly-owned subsidiaries, Aquasition LLC, Aquasition II LLC, W & T Energy VI, LLC, Delaware limited liability companies, and through our proportionately consolidated interest in Monza, as described in more detail in Financial Statements – Note 5 Joint Venture Drilling Program under Part I, Item 1 in this Quarterly Report.
23
Recent Events
As COVID-19 vaccines have been more widely distributed, global economic activity is improving and commodity prices are currently at pre-pandemic levels. However, the energy markets remain subject to heightened levels of uncertainty as responses to COVID-19 and COVID-19 variants continue to evolve. We will continue to monitor the effects of the pandemic on the energy markets in the future.
Under the Consolidated Appropriations Act, 2021 passed by the United States Congress and signed by the President on December 27, 2020, provisions of the CARES Act were extended and modified making the Company eligible for a refundable employee retention credit subject to meeting certain criteria. See Financial Statements – Note 1 – Basis of Presentation under Part 1, Item 1, and Liquidity and Capital Resources in this Item 2 of this Quarterly Report for additional information.
During the second quarter of 2021, the Company’s wholly-owned special purpose vehicles, A-I LLC and A-II LLC or the Borrowers, entered into the Subsidiary Credit Agreement providing for a secured term loan (“Term Loan”) in an aggregate principal amount equal to $215.0 million. Proceeds of the Term Loan were used by the Borrowers to (i) fund the acquisition of the Mobile Bay Properties and the Midstream Assets from the Company and (ii) pay fees, commissions and expenses in connection with the transactions contemplated by the Subsidiary Credit Agreement and the other related loan documents, including to enter into certain swap and put derivative contracts.
This transaction is described in more detail under Financial Statements –Note 4 – Mobile Bay Transaction, under Part 1, Item 1, of this Quarterly Report.
Oil and Natural Gas Production and Commodity Pricing
Our financial condition, cash flow and results of operations are significantly affected by the volume of our crude oil, NGLs and natural gas production and the prices that we receive for such production. Our production volumes for the six months ended June 30, 2021 were comprised of 37.4% crude oil and condensate, 10.0% NGLs and 52.6% natural gas, determined on a barrel of oil equivalent (“Boe”) using the energy equivalency ratio of six thousand cubic feet (“Mcf”) of natural gas to one barrel of crude oil, condensate or NGLs. The conversion ratio does not assume price equivalency, and the price per one Boe for crude oil, NGLs and natural gas has differed significantly in the past. For the six months ended June 30, 2021, our total revenues were 44.1% higher than the six months ended June 30, 2020 due to higher realized prices for crude oil, NGLs and natural gas, which were partially offset by lower volumes. See Results of Operations – Six Months Ended June 30, 2021, Compared to the Six Months Ended June 30, 2020 in this Item 2 for additional information.
Our operating results are strongly influenced by the price of the commodities that we produce and sell. The price of those commodities is affected by both domestic and international factors, including domestic production. During the six months ended June 30, 2021, our average realized crude oil price was $60.88 per barrel. This is an increase of 71.2% from our average realized crude oil price of $35.57 per barrel during the six months ended June 30, 2020. Per the Energy Information Administration ("EIA"), crude oil prices using average West Texas Intermediate (“WTI”) daily spot pricing increased to $62.21 per barrel during the six months ended June 30, 2021 compared to $36.58 per barrel during the six months ended June 30, 2020 representing an increase of 70.1%. Crude oil prices have recovered to pre-pandemic levels from their April 2020 lows caused by the ongoing COVID-19 pandemic as the vaccines have been more widely distributed and economic activity has increased.
24
Our average realized crude oil sales price differs from the WTI benchmark average crude price primarily due to premiums or discounts, crude oil quality adjustments, volume weighting (collectively referred to as differentials) and other factors. Crude oil quality adjustments can vary significantly by field. All of our crude oil is produced offshore in the Gulf of Mexico and is characterized as Poseidon, Light Louisiana Sweet (“LLS”), Heavy Louisiana Sweet (“HLS”) and others. WTI is frequently used to value domestically produced crude oil, and the majority of our crude oil production is priced using the spot price for WTI as a base price, then adjusted for the type and quality of crude oil and other factors. Similar to crude oil prices, the differentials for our offshore crude oil have also experienced volatility in the past. The monthly average differentials of Poseidon, LLS and HLS to WTI for the six months ended June 30, 2021 averaged ($0.23), $2.06, and $1.60 per barrel, respectively, and each average differential has changed ($0.13), $0.75, and $0.58 per barrel, respectively compared to the six months ended June 30, 2020.
Our average realized price of natural gas of $2.99 per Mcf for the six months ended June 30, 2021 was 61.5% higher than the average realized price of $1.85 per Mcf for the six months ended June 30, 2020. The average Henry Hub ("HH") daily natural gas spot price of $3.27 per Mcf for the six months ended June 30, 2021 was 74.7% higher than the average HH natural gas price of $1.87 per Mcf for the six months ended June 30, 2020. Per the EIA, this increase was caused by increased demand related to the increase in economic activity and is somewhat elevated by the much higher average price in February 2021 caused by much colder-than-normal temperatures across the country.
Our average realized price of NGLs of $24.94 per barrel for the six months ended June 30, 2021 was 169.6% higher than the average realized price of $9.25 per barrel for the six months ended June 30, 2020. Two major components of our NGLs, ethane and propane, typically make up over 70% of an average NGL barrel. For the six months ended June 30, 2021 compared to the six months ended June 30, 2020, average prices for domestic ethane increased by 81.4% and average domestic propane prices increased by 189.0% as measured using a price index for Mount Belvieu. The average prices for other domestic NGLs components increased from 87.5% to 107.3% for the six months ended June 30, 2021 compared to the same period in 2020. We believe the change in prices for NGLs is mostly a function of the change in crude oil prices combined with changes in propane supply and demand.
According to Baker Hughes, the number of working rigs drilling for oil and natural gas on land in the U.S. as reported in their July 23, 2021 report was higher than a year ago, increasing to 491 rigs compared to 253 rigs a year ago. The oil rig count increased to 387 rigs compared to 180 rigs a year ago and the gas and miscellaneous rigs increased to 104 rigs from 73 a year ago. In the Gulf of Mexico, the number of working rigs was 17 rigs compared to 12 a year ago.
25
Results of Operations
The following tables set forth selected financial and operating data for the periods indicated (all values are net to our interest unless indicated otherwise):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2021 |
|
2020 |
|
|
Change |
|
2021 |
|
2020 |
|
|
Change |
||||
|
|
(In thousands, except percentages and per share data) |
||||||||||||||||
Financial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
88,013 |
|
$ |
30,645 |
|
$ |
57,368 |
|
$ |
166,153 |
|
$ |
115,295 |
|
$ |
50,858 |
NGLs |
|
|
8,833 |
|
|
1,917 |
|
|
6,916 |
|
|
18,193 |
|
|
8,369 |
|
|
9,824 |
Natural gas |
|
|
32,470 |
|
|
21,364 |
|
|
11,106 |
|
|
68,679 |
|
|
50,664 |
|
|
18,015 |
Other |
|
|
3,512 |
|
|
1,315 |
|
|
2,197 |
|
|
5,451 |
|
|
5,041 |
|
|
410 |
Total revenues |
|
|
132,828 |
|
|
55,241 |
|
|
77,587 |
|
|
258,476 |
|
|
179,369 |
|
|
79,107 |
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
47,552 |
|
|
28,313 |
|
|
19,239 |
|
|
89,909 |
|
|
83,088 |
|
|
6,821 |
Production taxes |
|
|
1,956 |
|
|
1,143 |
|
|
813 |
|
|
3,952 |
|
|
2,059 |
|
|
1,893 |
Gathering and transportation |
|
|
4,824 |
|
|
3,301 |
|
|
1,523 |
|
|
9,143 |
|
|
8,750 |
|
|
393 |
Depreciation, depletion, amortization and accretion |
|
|
30,952 |
|
|
29,483 |
|
|
1,469 |
|
|
57,589 |
|
|
68,609 |
|
|
(11,020) |
General and administrative expenses |
|
|
13,986 |
|
|
5,628 |
|
|
8,358 |
|
|
24,698 |
|
|
19,591 |
|
|
5,107 |
Derivative loss (gain) |
|
|
81,440 |
|
|
15,414 |
|
|
66,026 |
|
|
106,020 |
|
|
(46,498) |
|
|
152,518 |
Total costs and expenses |
|
|
180,710 |
|
|
83,282 |
|
|
97,428 |
|
|
291,311 |
|
|
135,599 |
|
|
155,712 |
Operating (loss) income |
|
|
(47,882) |
|
|
(28,041) |
|
|
(19,841) |
|
|
(32,835) |
|
|
43,770 |
|
|
(76,605) |
Interest expense, net |
|
|
16,530 |
|
|
14,816 |
|
|
1,714 |
|
|
31,564 |
|
|
31,926 |
|
|
(362) |
Gain on debt transactions |
|
|
— |
|
|
(28,968) |
|
|
28,968 |
|
|
— |
|
|
(47,469) |
|
|
47,469 |
Other expense, net |
|
|
— |
|
|
751 |
|
|
(751) |
|
|
963 |
|
|
1,474 |
|
|
(511) |
(Loss) income before income tax (benefit) expense |
|
|
(64,412) |
|
|
(14,640) |
|
|
(49,772) |
|
|
(65,362) |
|
|
57,839 |
|
|
(123,201) |
Income tax (benefit) expense |
|
|
(12,740) |
|
|
(8,736) |
|
|
(4,004) |
|
|
(12,944) |
|
|
(2,237) |
|
|
(10,707) |
Net (loss) income |
|
$ |
(51,672) |
|
$ |
(5,904) |
|
$ |
(45,768) |
|
$ |
(52,418) |
|
$ |
60,076 |
|
$ |
(112,494) |
Basic and diluted (loss) earnings per common share |
|
$ |
(0.36) |
|
$ |
(0.04) |
|
$ |
(0.32) |
|
$ |
(0.37) |
|
$ |
0.42 |
|
$ |
(0.79) |
26
(1) |
The conversion to barrels of oil equivalent and cubic feet equivalent were determined using the energy equivalency ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or NGLs (totals may not compute due to rounding). The conversion ratio does not assume price equivalency, and the price on an equivalent basis for oil, NGLs and natural gas may differ significantly. |
(2) |
Some average figures and variance percentages in this table may not compute due to rounding. |
|
|
|
Volume measurements not previously defined: |
|
|
MBbls — thousand barrels for crude oil, condensate or NGLs |
|
Mcf — thousand cubic feet |
MBoe — thousand barrels of oil equivalent |
|
MMcf — million cubic feet |
27
Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020
Revenues. The increase in oil revenues was attributable to an increase in average realized sales price per Bbl to $65.11 from $21.67 for the three months ended June 30, 2021 and 2020, respectively. This was partially offset by a decrease in oil sales volumes of 4.4% for the three months ended June 30, 2021 as compared to the same period in the prior year. The increase in NGLs revenues was attributable to an increase in the average realized sales price per Bbl to $26.18 from $4.67 for the three months ended June 30, 2021 and 2020, respectively. This was partially offset by a 17.8% decrease in NGL sales volumes during the three months ended June 30, 2021 as compared to the same period in the prior year. The increase in natural gas revenues was attributable to an increase in the average realized price to $2.66 per Mcf from $1.78 per Mcf for the three months ended June 30, 2021 and 2020, respectively, and a 1.5% increase in volumes.
Overall, sales volumes decreased 2.7% on a Boe per day basis primarily due to shut-ins related to well maintenance at the Mahogany field and (to a lesser extent) the Mobile Bay area. We estimate that these shut-ins reduced the produced volumes for the three months ended June 30, 2021 by approximately 3,198 Boe per day as compared to 4,100 Boe per day for the three months ended June 30, 2020.
Revenues from oil and NGLs as a percent of our total revenues were 72.9% for the three months ended June 30, 2021 compared to 58.9% for the three months ended June 30, 2020. Our average realized NGLs sales price as a percent of our average realized crude oil sales price increased to 40.2% for the three months ended June 30, 2021 compared to 21.6% for the three months ended June 30, 2020.
Lease operating expenses. Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $19.2 million, or 68.0%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. On a component basis, base lease operating expenses increased $14.6 million, workover expenses increased $2.0 million, facilities maintenance expense increased $1.4 million, and hurricane repairs increased $1.2 million.
Base lease operating expenses increased primarily due to (i) higher contract labor, equipment rental, and transportation costs of $3.1 million at various fields; (ii) increased incentive compensation costs related to field employees of $2.2 million; (iii) a reduction in credits to expense from prior period royalty adjustments of $2.4 million as compared to the prior period; (iv) a reduction in credits to expense of $2.3 million received in prior period from the PPP funds; and (v) a reduction in credits to expense in the prior year associated with the finalization of the Mobile Bay acquisition. The increases in workover expenses and facilities maintenance expense were due to an increase in projects undertaken. Lastly, we incurred $1.2 million in expenses related to hurricane repairs at various fields during the three months ended June 30, 2021 that we did not incur during the comparable prior year period.
Production taxes. Production taxes increased $0.8 million in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 due to the increase in realized natural gas prices, increased NGL prices, and to a lesser extent increased natural gas production volumes.
Gathering and transportation. Gathering and transportation expenses increased $1.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to lower costs in the comparable prior year period that were impacted by credits to expense associated with the finalization of the Mobile Bay acquisition.
Depreciation, depletion, amortization and accretion (“DD&A”). DD&A, which includes accretion for ARO, increased to $8.32 per Boe for the three months ended June 30, 2021 from $7.71 per Boe for the three months ended June 30, 2020. On a nominal basis, DD&A increased 5.0%, or $1.5 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The rate per Boe increased year-over-year mostly as a result of increases in the future development costs included in the depreciable base compared to the relatively smaller increase in proved reserves over the comparable prior year period.
28
General and administrative expenses (“G&A”). G&A increased $8.4 million, or 148.5%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase was primarily due to (i) increased incentive compensation expenses and payroll expenses of $1.8 million; (ii) a decrease of $5.0 million in G&A credits related to the PPP funds received in the prior period; (iii) an increase in legal costs of $0.4 million; (iv) a reduction in overhead allocations to partners (credits to expense) of $0.6 million, and (v) increases of $0.6 million in other miscellaneous G&A expense items such as software licensing and surety bond costs.
Derivative loss (gain). The three months ended June 30, 2021 includes an $81.4 million derivative loss primarily due to increased crude oil and natural gas prices during June 2021 compared to prices during March 2021, which decreased the estimated fair value of open contracts between the two measurement dates. The three months ended June 30, 2020 reflects a $15.4 million derivative loss primarily due to increased crude oil prices during June 2020 compared to oil prices during March 2020, which decreased the estimated fair value of open crude oil contracts between the two measurement dates. Partially offsetting were realized gains from oil swap contracts where the price was below the contract strike price.
Interest expense, net. Interest expense, net, was $16.5 million and $14.8 million for the three months ended June 30, 2021 and 2020, respectively. The increase of $1.7 million in 2021 is primarily due to interest expense on the principal balance of the Term Loan, and a reduction in credits to interest expense related to the PPP funds received in the prior period; partially offset by reductions to outstanding borrowings (lower interest expense) under the Company Credit Agreement during 2021.
Gain on purchase of debt. A gain of $29.0 million was recorded related to the purchase of $45.1 million of principal of our outstanding Senior Second Lien Notes during the three months ended June 30, 2020. No such transactions occurred during the three months ended June 30, 2021.
Income tax benefit. Our income tax benefit was $12.7 million and $8.7 million for the three months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021, our income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes. For the three months ended June 30, 2020, our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded related to the enactment of the 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). Our effective tax rate was 19.8% for the three months ended June 30, 2021 and 59.7% for the three months ended June 30, 2020.
As of June 30, 2021, the valuation allowance on our deferred tax assets was $22.8 million. We continually evaluate the need to maintain a valuation allowance on our deferred tax assets. Any future reduction of a portion or all of the valuation allowance would result in a non-cash income tax benefit in the period the decision occurs. See Financial Statements – Note 9 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
Revenues. The increase in oil revenues was attributable to an increase in the average realized sales price per Bbl to $60.88 from $35.57 for the six months ended June 30, 2021 and 2020, respectively. This was partially offset by a decrease in oil sales volumes of 15.8%. The increase in NGLs revenues was attributable to a 169.6% increase in the average realized sales price for the six months ended June 30, 2021 compared to 2020. This was partially offset by a decrease in NGL sales volumes of 19.4% for the same period. The increase in natural gas revenues was attributable to a 61.5% increase in the average realized sales price for the six months ended June 30, 2021 compared to 2020. This was partially offset by a 15.8% decrease in natural gas sales volumes for the same period.
Overall, sales volumes decreased 15.7% on a Boe per day basis primarily due to shut-ins related to adverse weather events and well maintenance at various fields during the six months ended June 30, 2021. We estimate that these shut-ins reduced the produced volumes for the six months ended June 30, 2021 by approximately 4,200 Boe per day as compared to 3,800 Boe per day for the six months ended June 30, 2020.
29
Revenues from oil and NGLs as a percent of our total revenues were 71.3% for the six months ended June 30, 2021 compared to 68.9% for the six months ended June 30, 2020. Our average realized NGLs sales price as a percent of our average realized crude oil sales price increased to 41.0% for the six months ended June 30, 2021 compared to 26.0% for the six months ended June 30, 2020.
Lease operating expenses. Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance, increased $6.8 million, or 8.2%, in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. On a component basis, base lease operating expenses increased $1.5 million, workover expenses increased $1.0 million, facilities maintenance expense increased $0.5 million, and hurricane repairs increased $3.8 million.
Base lease operating expenses increased during the six months ended June 30, 2021 primarily due to (i) higher contract labor, equipment rental, and transportation costs of $1.3 million at various fields; (ii) increased incentive compensation costs related to field employees of $2.2 million; (iii) a reduction in credits to expense from prior period royalty adjustments of $1.1 million as compared to the prior period; (iv) a reduction in credits to expense of $2.3 million received in prior period from the PPP funds; and (v) a reduction in credits to expense in the prior year associated with the finalization of the Mobile Bay acquisition; partially offset by (vi) $5.7 million of reduced expenses during the first quarter of 2021 related to successful cost reduction efforts at various fields and other reduced expenses; and (vii) $4.3 million of reduced expenses related to fields that were no longer producing during the six months ended June 30, 2021. The increases in workover expenses and facilities maintenance expense were due to an increase in projects undertaken. Lastly, we incurred $3.8 million in expenses related to hurricane repairs at various fields during the six months ended June 30, 2021 that we did not incur during the prior year period.
Production taxes. Production taxes increased $1.9 million during the six months ended June 30, 2021 compared to the three months ended June 30, 2020 due to the increase in realized natural gas prices, partially offset by decreased natural gas production volumes.
Gathering and transportation. Gathering and transportation expenses increased $0.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to lower costs in the comparable prior year period that were impacted by credits to expense associated with the finalization of the Mobile Bay acquisition.
Depreciation, depletion, amortization and accretion. DD&A, which includes accretion for ARO, increased to $7.90 per Boe for the six months ended June 30, 2021 from $7.89 per Boe for the six months ended June 30, 2020. On a nominal basis, DD&A decreased 16.1%, or $11.0 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The rate per BOE increased year-over-year mostly as a result of increases in future development costs included in the depreciable base compared to the relatively smaller increase in proved reserves and the decrease in production volumes over the same period.
General and administrative expenses. G&A increased $5.1 million, or 26.1%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase was primarily due to (i) a decrease of $5.0 million in G&A credits related to the PPP funds received in the prior period; (ii) a reduction in overhead allocations to partners (credits to expense) of $1.6 million; and (iii) an increase in legal costs of $1.2 million; partially offset by (i) the $2.1 million employee retention credit recognized during the three months ended March 31, 2021, and (ii) a net decrease of $0.6 million in payroll and incentive compensation expenses. See Financial Statements – Note 1 – Basis of Presentation under Part 1, Item 1, and Liquidity and Capital Resources in this Item 2 of this Form 10-Q for additional information on the employee retention credit.
Derivative loss (gain). The six months ended June 30, 2021 reflects a $106.0 million derivative loss primarily due to increased crude oil prices and natural gas prices during June 2021 compared to prices during December 2020, which decreased the estimated fair value of open contracts between the two measurement dates. The six months ended June 30, 2020 reflects a $46.5 million derivative gain primarily due to realized gains on oil swap contracts where the price was below the strike price and due to decreased crude oil prices during June 2020 as compared to oil prices during December 2019, which increased the estimated fair value of open crude oil contracts between the two measurement dates.
30
Interest expense, net. Interest expense, net, was $31.6 million and $31.9 million for the six months ended June 30, 2021 and 2020, respectively. The decrease is primarily due to reductions to outstanding borrowings (lower interest expense) under the Company Credit Agreement during 2021; partially offset by interest expense on the principal balance of the Term Loan, and a reduction in credits to interest expense related to the PPP funds received in the prior period.
Gain on purchase of debt. A gain of $47.5 million was recorded related to the purchase of $72.5 million of principal of our outstanding Senior Second Lien Notes during the six months ended June 30, 2020. No such transactions occurred during the six months ended June 30, 2021.
Income tax benefit. Our income tax benefit was $12.9 million and $2.2 million for the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021, our income tax benefit differed from the statutory Federal tax rate primarily by the impact of state income taxes. For the six months ended June 30, 2020, our effective tax rate primarily differed from the statutory Federal tax rate for adjustments recorded as a result to the enactment of the 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). Our effective tax rate was 19.8% for the six months ended June 30, 2021 and (3.9)% for the six months ended June 30, 2020.
Liquidity and Capital Resources
Liquidity Overview
Our primary liquidity needs are to fund capital and operating expenditures and strategic acquisitions to allow us to replace our oil and natural gas reserves, repay and service outstanding borrowings, operate our properties and satisfy our ARO obligations. We have funded such activities in the past with cash on hand, net cash provided by operating activities, sales of property, securities offerings and bank and other borrowings and expect to continue to do so in the future.
As of June 30, 2021, we had $209.1 million cash on hand, no borrowings under our Company Credit Agreement and no maturities of long-term debt until October 2023, other than scheduled quarterly amortization payments under the Term Loan (see Financial Statements – Note 2 – Debt, under Part I, Item 1 of this Quarterly Report for additional information). We currently expect our cash on hand, net cash provided by operating activities and other available sources of liquidity to be sufficient to meet our cash requirements over the next 12 months. We have recently agreed by amendment to our Company Credit Agreement to refrain from borrowing under our bank credit facility unless and until the next redetermination of our borrowing base, which is scheduled to occur on or about October 1, 2021, and the Company complies with certain revised hedging requirements. We expect that our borrowing base under our Company Credit Agreement will be adjusted in the next scheduled redetermination, including adjustments as a result of the elimination of the Mobile Bay assets as collateral under the Company Credit Agreement.
We are actively monitoring the debt capital markets, and we intend to seek financing with longer tenors and market based covenants to continue to provide working and potential acquisition capital. The terms of such financing, which may replace or augment our current Company Credit Agreement, may vary significantly from those under our current Company Credit Agreement.
31
Sources and Uses of Cash
Cash Flow Overview
|
|
|
|
|
|
|
|
|
|
|
|
Sources (Uses) of Cash
|
|||||||
|
|
Six Months Ended June 30, |
|||||||
|
|
2021 |
|
2020 |
|
|
Change |
||
Operating activities |
|
$ |
46,194 |
|
$ |
93,478 |
|
$ |
(47,284) |
Investing activities |
|
|
(8,932) |
|
|
(40,475) |
|
|
31,543 |
Financing activities |
|
|
128,160 |
|
|
(48,930) |
|
|
177,090 |
Operating activities. Net cash provided by operating activities decreased $47.3 million for the six months ended June 30, 2021 compared to the corresponding period in 2020. This was primarily due to (i) cash derivative payments, the net of which decreased operating cash flows $41.1 million for the six months ended June 30, 2021 compared to cash derivative receipts, net, which increased operating cash flows $37.6 million for the six months ended June 30, 2020; and (ii) asset retirement obligation settlements which decreased operating cash flows by $11.2 million for the six months ended June 30, 2020 compared to $2.2 million for the six months ended June 30, 2020.
Our combined average realized sales price per Boe increased by 73.2% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, which caused total revenues to increase $106.6 million. The increase to revenues was offset by a 16.2% decrease in total sales volumes during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, which cause revenues to decrease $27.9 million. Other items affecting operating cash flows were (i) higher receivable balances due to increases in realized prices, which decreased operating cash flows by $12.3 million for the six months ended June 30, 2021 compared to an increase of $39.7 million for the six months ended June 30, 2020; and (ii) decreased cash advance balances from joint venture partners, which decreased operating cash flows by $3.9 million for the six months ended June 30, 2021 compared to an increase of $5.9 million for the six months ended June 30, 2020. Other working capital items and share based compensation expense accounted for the remaining changes in net cash provided by operating activities.
Investing activities. Net cash used in investing activities decreased $31.5 million for the six months ended June 30, 2021 compared to the corresponding period in 2020. Our current year capital budget is weighted toward the second half of 2021, therefore, investing activities have been lower in the six months ended June 30, 2021 compared to the same period in 2020. Net cash used in investing activities for the six months ended June 30, 2021 included $3.1 million in working capital changes associated with capital expenditures incurred in 2020 but paid during the six months ended June 30, 2021.
Financing activities. Net cash provided by financing activities increased $177.1 million for the six months ended June 30, 2021 compared to the corresponding period in 2020. Net cash provided by financing activities for the six months ended June 30, 2021 was $128.2 million compared to net cash used in financing activities of $48.9 million for the six months ended June 30, 2020. The net cash provided for the six months ended June 30, 2021 included the proceeds from the term loan of $208.2 million, offset by repayment of $80.0 million of borrowings under the Company Credit Agreement. The net cash used for the six months ended June 30, 2020 included repayment of $25.0 million of borrowings under the Credit Agreement and $23.9 million to purchase $72.5 million principal of Senior Second Lien Notes on the open market.
32
Derivative Financial Instruments. From time to time, we use various derivative instruments to manage a portion of our exposure to commodity price risk from sales of oil and natural gas. During the six months ended June 30, 2021 we entered into derivative contracts for crude oil and natural gas for a portion of our future production. See Financial Statements – Note 7 – Derivative Financial Instruments under Part I, Item 1 of this Quarterly Report for additional information. The following table summarizes the historical results of our hedging activities:
Asset Retirement Obligations. Each quarter, we review and revise our ARO estimates. Our ARO estimates as of June 30, 2021 and December 31, 2020 were $404.0 million and $392.7 million, respectively. As our ARO estimates are for work to be performed in the future, and in the case of our non-current ARO, extend from one to many years in the future, actual expenditures could be substantially different than our estimates. See Risk Factors, under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information.
Income Taxes. We do not expect to make any significant income tax payments during 2021, and we did not have any outstanding current income taxes receivable as of June 30, 2021. See Financial Statements – Note 9 –Income Taxes under Part I, Item 1 of this Quarterly Report for additional information.
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 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 six months ended June 30, 2021 which is included as a credit to General and administrative expenses in the Condensed Consolidated Statement of Operations.
33
Capital Expenditures
The level of our investment in oil and natural gas properties changes from time to time depending on numerous factors, including the prices of crude oil, NGLs and natural gas, acquisition opportunities, available liquidity and the results of our exploration and development activities. The following table presents our capital expenditures for exploration, development and other leasehold costs (in thousands):
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||
|
|
2021 |
|
2020 |
||
|
|
(In thousands) |
||||
Exploration (1) |
|
$ |
1,309 |
|
$ |
1,686 |
Development (1) |
|
|
902 |
|
|
10,274 |
Magnolia and Mobile Bay acquisitions |
|
|
471 |
|
|
456 |
Seismic and other |
|
|
3,174 |
|
|
2,177 |
Investments in oil and gas property/equipment – accrual basis |
|
$ |
5,856 |
|
$ |
14,593 |
(1) | Reported geographically in the subsequent table. |
The following table presents our exploration and development capital expenditures geographically in the Gulf of Mexico (in thousands):
Our exploration and development spending decreased $9.7 million compared to prior year, primarily in the conventional shelf area, which includes Alabama state waters, due to the fact that our current year capital budget is weighted toward the second half of 2021. Excluding acquisitions and plugging and abandonment expenditures, we are currently estimating capital expenditures to range from $30.0 million to $60.0 million for 2021 and ARO spending to range from $25.0 million to $35.0 million.
The capital expenditures are included within Oil and natural gas properties and other, net on the Condensed Consolidated Balance Sheets and recorded on an incurred basis. The capital expenditures reported within the Investing section of the Condensed Consolidated Statements of Cash Flows include adjustments to report cash payments related to capital expenditures. Net cash used in investing activities for the six months ended June 30, 2021 included $3.1 million in working capital changes associated with capital expenditures incurred in 2020 but paid during the six months ended June 30, 2021. Our capital expenditures for the six months ended June 30, 2021 were financed by cash flow from operations and cash on hand.
Drilling Activity
We did not drill any wells in the six months ended June 30, 2021. During the six months ended June 30, 2020, we drilled the East Cameron 349 B-1 well (Cota) to target depth. We expect initial production to commence in the fourth quarter of 2021, subject to completion of certain infrastructure and the level of commodity prices. The Cota well is in the Monza Joint Venture Drilling Program. See Financial Statements – Note 5 –Joint Venture Drilling Program under Part I, Item 1 of this Form 10-Q for additional information.
34
Debt
Term Loan. As of June 30, 2021, we had $215.0 million of Term Loan principal outstanding. The Term Loan requires quarterly amortization payments commencing September 30, 2021, bears interest at a fixed rate of 7% per annum and will mature on May 19, 2028. The Term Loan is non-recourse to the Company and its subsidiaries other than Borrowers and the subsidiary that owns the equity of Borrowers, and is not secured by any assets other than first lien security interests in the equity in the Borrowers and a first lien mortgage security interest and mortgages on certain assets of Borrowers (the Mobile Bay Properties). See Financial Statements – Note 2 –Debt under Part I, Item 1 of this Form 10-Q for additional information.
Company Credit Agreement. As of June 30, 2021, we had no borrowings outstanding under the Company Credit Agreement and letters of credit issued under the Company Credit Agreement were $4.4 million. During the six months ended June 30, 2021, we repaid $80.0 million of borrowings. The Company Credit Agreement matures on October 18, 2022.
Availability under our Company Credit Agreement is subject to semi-annual redeterminations of our borrowing base, which was lowered from $215.0 million to $190.0 million following redetermination on January 6, 2021. As of June 30, 2021, we had no borrowings under our Company Credit Agreement and, in light of our expected near term capital needs and our current cash position, we have agreed not to make borrowings under the Company Credit Agreement unless and until the next scheduled redetermination of our borrowing base on or about October 1, 2021 and the Company complies with certain revised hedging requirements (pursuant to the Seventh Amendment executed on July 15, 2021). Generally, we must be in compliance with the covenants in our Company Credit Agreement in order to access borrowings under the Company Credit Agreement.
We anticipate an adjustment to our borrowing base under the Company Credit Agreement in the next scheduled redetermination primarily as a result of the elimination of the Mobile Bay assets as collateral under the Company Credit Agreement and pledge of such assets under the Subsidiary Credit Agreement.
Senior Second Lien Notes. As of June 30, 2021, we had outstanding $552.5 million principal of Senior Second Lien Notes with an interest rate of 9.75% per annum that mature on November 1, 2023. The Senior Second Lien Notes are secured by a second-priority lien on all of our assets that are secured under the Company Credit Agreement. See Financial Statements – Note 2 – Debt under Part I, Item 1 of this Quarterly Report for additional information.
Debt Covenants. The Term Loan, Company Credit Agreement, and Senior Second Lien Notes contain financial covenants calculated as of the last day of each fiscal quarter, which include thresholds on financial ratios, as defined in the respective Subsidiary Credit Agreement, Company Credit Agreement and the indenture related to the Senior Second Lien Notes. We were in compliance with all applicable covenants of the Term Loan, Company Credit Agreement and the Senior Second Lien Notes indenture as of and for the period ended June 30, 2021. See Financial Statements – Note 2 – Debt under Part I, Item 1 of this Quarterly Report for additional information.
Paycheck Protection Program. On April 15, 2020, the Company received $8.4 million under the PPP. During the eligible period, the Company incurred eligible expenses in excess of the amount received. The PPP funds are structured as a loan, but the funds can be forgiven by the SBA. The Company submitted an application for forgiveness to the SBA on August 20, 2020, requesting that the PPP funds received be applied to specific covered and non-covered payroll costs. On June 11, 2021, we received notification that the SBA accepted our application and approved forgiveness of our PPP funds; therefore, we will not be required to repay the grant.
35
Uncertainties
Bureau of Ocean Energy Management (“BOEM”) Matters. In order to cover the various decommissioning obligations of lessees on the OCS, the BOEM generally requires that lessees post some form of acceptable financial assurance that such obligations will be met, such as surety bonds. The cost of such bonds or other financial assurance can be substantial, and we can provide no assurance that we can continue to obtain bonds or other surety in all cases. As many BOEM regulations are being reviewed by the agency, we may be subject to additional financial assurance requirements in the future. As of the filing date of this Form 10-Q, we are in compliance with our financial assurance obligations to the BOEM and have no outstanding BOEM orders related to financial assurance obligations. We and other offshore Gulf of Mexico producers may, in the ordinary course of business, receive requests or demands in the future for financial assurances from the BOEM.
Surety Bond Collateral. Some of the sureties that provide us surety bonds used for supplemental financial assurance purposes have historically requested and received collateral from us, and may request additional collateral from us in the future, which could be significant and materially impact our liquidity. In addition, pursuant to the terms of our agreements with various sureties under our existing bonds or under any additional bonds we may obtain, we are required to post collateral at any time, on demand, at the surety’s discretion. No additional demands were made to us by sureties during 2021 as of the filing date of this Form 10-Q and we currently do not have surety bond collateral outstanding.
The issuance of any additional surety bonds or other security to satisfy future BOEM orders, collateral requests from surety bond providers, and collateral requests from other third parties may require the posting of cash collateral, which may be significant, and may require the creation of escrow accounts.
Insurance Coverage
Insurance Coverage. 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 $150 million for all other properties subject to a retention of $17.5 million on the conventional shelf properties and $12.5 million on the deepwater properties. Included within the $162.5 million aggregate limit is total loss only coverage on our Mahogany platform, which has no retention. The operational and named windstorm coverages are effective for one year beginning June 1, 2021. Coverage for pollution causing a negative environmental impact is provided under the well control and other sections within the policy.
Our general and excess liability policies are effective for one year beginning May 1, 2021 and provide for $300.0 million of coverage for bodily injury and property damage liability, including coverage for liability claims resulting from seepage, pollution or contamination. With respect to the Oil Spill Financial Responsibility requirement under the Oil Pollution Act of 1990, we are required to evidence $35.0 million of financial responsibility to the BSEE and we have insurance coverage of such amount.
Although we were able to renew our general and excess liability policies effective on May 1, 2021, and our Energy Package on June 1, 2021, our insurers may not continue to offer this type and level of coverage to us in the future, or our costs may increase substantially as a result of increased premiums and there could be an increased risk of uninsured losses that may have been previously insured, all of which could have a material adverse effect on our financial condition and results of operations. 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 insurers will not pay our claims. We do not carry business interruption insurance.
Contractual Obligations
As of June 30, 2021, there were no long-term drilling rig commitments. Except for scheduled utilization and our quarterly amortization payments under the Term Loan (see Financial Statements – Note 2 – Debt under Part 1 of this
36
Quarterly Report), other contractual obligations as of June 30, 2021 did not change materially from the disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations, under Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Critical Accounting Policies and Estimates
We consider accounting policies related to oil and natural gas properties, proved reserve estimates, fair value measure of financial instruments, asset retirement obligations, revenue recognition and income taxes as critical accounting policies. These policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used.
There have been no changes to our critical accounting policies which are summarized in Financial Statements and Supplementary Data under Part II, Item 8 of our 2020 Annual Report. See Financial Statements – Note 1 – Basis of Presentation under Part 1, Item 1 of this Quarterly Report for additional information.
Recent Accounting Pronouncements
See Financial Statements – Note 1 – Basis of Presentation under Part 1, Item 1, of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about the types of market risks for the six months ended June 30, 2021 did not change materially from the disclosures in Quantitative and Qualitative Disclosures About Market Risk under Part II, Item 7A of our 2020 Annual Report. In addition, the information contained herein should be read in conjunction with the related disclosures in our 2020 Annual Report.
Item 4. Controls and Procedures
We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that any material information relating to us is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Exchange Act Rule 13a-15(b), we performed an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have each concluded that as of June 30, 2021, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that our controls and procedures are designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended June 30, 2021, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
37
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Financial Statements – Note 11 – Contingencies under Part I Item 1 of this Form 10-Q for information on various legal proceedings to which we are a party or our properties are subject.
Item 1A. Risk Factors
In addition to the information set forth in this Quarterly Report, investors should carefully consider the risk factors and other cautionary statements included under Part I, Item 1A, Risk Factors, in our 2020 Annual Report, together with all of the other information included in this Quarterly Report, and in our other public filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Notwithstanding the matters discussed herein, there have been no material changes in our risk factors as previously disclosed in Part I, Item 1A, Risk Factors, in our 2020 Annual Report.
38
Item 6. Exhibits
|
|
|
Exhibit
|
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
3.4 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2* |
|
|
|
|
|
10.3* |
|
|
|
|
|
10.4* |
|
|
|
|
|
10.5* |
|
|
|
|
|
10.6* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
|
|
|
101.INS* |
|
Inline XBRL Instance Document |
|
|
|
101.SCH* |
|
Inline XBRL Schema Document |
|
|
|
101.CAL* |
|
Inline XBRL Calculation Linkbase Document |
|
|
|
39
101.DEF* |
|
Inline XBRL Definition Linkbase Document |
|
|
|
101.LAB* |
|
Inline XBRL Label Linkbase Document |
|
|
|
101.PRE* |
|
Inline XBRL Presentation Linkbase Document |
|
|
|
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* |
Filed or furnished herewith. |
40
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 4, 2021.
|
|
|
|
W&T OFFSHORE, INC. |
|
|
|
|
|
By: |
/s/ Janet Yang |
|
|
Janet Yang |
|
|
Executive Vice President and Chief Financial Officer
|
41
Exhibit 10.2
WAIVER AND SEVENTH AMENDMENT TO
SIXTH AMENDED AND RESTATED CREDIT AGREEMENT
THIS WAIVER AND SEVENTH AMENDMENT TO SIXTH AMENDED AND RESTATED CREDIT AGREEMENT (herein called this “Seventh Amendment”), dated as of June 30, 2021 (the “Effective Date”), is entered into by and among W&T OFFSHORE, INC., a Texas corporation, as the borrower (the “Borrower”), the Guarantor Subsidiaries party hereto, the various financial institutions parties hereto, as Lenders, TORONTO DOMINION (TEXAS) LLC, individually and as agent (in such capacity together with any successors thereto, the “Administrative Agent”) for the Lenders, and the issuers of letters of credit parties hereto, as issuers (collectively, the “Issuers”).
WITNESSETH
WHEREAS, the Borrower, the lenders party thereto (collectively, the “Lenders”), the Administrative Agent, the Issuers and the other parties thereto have heretofore executed the Sixth Amended and Restated Credit Agreement, dated as of October 18, 2018 (as amended, supplemented, amended and restated or otherwise modified from time to time prior to the date hereof, the “Existing Credit Agreement”);
WHEREAS, the parties hereto hereby intend to amend certain provisions of the Existing Credit Agreement, in each case on the terms and conditions set forth herein; and
WHEREAS, the Borrower has requested that the Lenders waive compliance by the Borrower with certain provisions of the Existing Credit Agreement and any attendant Defaults or Events of Default and the Lenders agree to so waive those provisions and such attendant Defaults or Events of Default on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the undersigned hereby agree as follows:
(a) | The Table of Contents is hereby amended to reflect the appropriate page number references and section titles as may be necessary to reflect the changes to the Credit Agreement made by this Seventh Amendment. |
(b) | Section 1.1 is hereby amended by adding the following new definitions in the appropriate alphabetical order: |
“Seventh Amendment” means the Waiver and Seventh Amendment to Sixth Amended and Restated Credit Agreement dated as of the Seventh Amendment Effective Date among the Borrower, the Administrative Agent and the Lenders.
“Seventh Amendment Effective Date” means June 30, 2021.
(c) | Section 2.1(d)(ii) is hereby amended and restated in its entirety to the following: |
“(ii) from and after the Seventh Amendment Effective Date until the Borrower has come in to compliance with Section 7.3 and the deferred Spring 2021 Borrowing Base redetermination referred to in Section 4 of the Seventh Amendment shall have occurred, make any new Revolving Loan (other than pursuant to Section 2.11 as a result of participations in Letters of Credit) or issue (in the case of an Issuer) any new Letter of Credit; provided that it is understood and agreed by the Borrower that the Borrowing Base as so modified, adjusted or reaffirmed for such first time after the Seventh Amendment Effective Date shall not include any Oil and Gas Properties acquired by the Borrower or any of the Subsidiaries after May 7, 2021.”
(d) | Section 4.2(d) is amended by adding the following to the end of such Section: |
“; provided, that for the avoidance of doubt, this condition cannot be satisfied until the Borrower has come into compliance with Section 7.3.”
(e) | Section 7.3(b) is hereby amended and restated in its entirety to the following: |
“(b)The Borrower or any Restricted Subsidiary may enter into (i) call options for the purpose and effect of offsetting hedges fixing prices on oil and gas production entered into by Aquasition Parent or any of its Subsidiaries in connection with the transactions contemplated by the Aquasition Transaction Documents; provided that after giving effect thereto the aggregate of all of the call options in effect and held by the Borrower, the Borrower’s Restricted Subsidiaries, Aquasition and its Subsidiaries does not exceed for any month in the aggregate with respect to (x) oil, the sum of Projected Oil Production anticipated to be sold in the ordinary course of the Borrower’s, its Restricted Subsidiaries’, Aquasition’s and its Subsidiaries’, businesses for such month, and (y) gas, the sum of Projected Gas Production anticipated to be sold in the ordinary course of the Borrower’s, its Restricted Subsidiaries’, Aquasition’s and its Subsidiaries’, businesses for such month and (ii) contracts for the purpose and effect of fixing interest rates on a principal amount of indebtedness of the Borrower or such Restricted Subsidiary that is accruing interest at a variable rate, provided that each such contract is with a counterparty or has a guarantor of the obligation of the counterparty who (unless at the time the contract is made such counterparty is an Approved Counterparty) at the time the contract is made has long-term obligations rated BBB- or Baa3 or better, respectively, by either Rating Agency or is an investment grade-rated industry participant; and”
(f) | Section 7.3(c) is hereby amended by adding the following to the end of such Section before the period: |
“; provided that so long as (i) there are no outstanding Loans and (ii) Letter of Credit Outstandings do not exceed the Letter of Credit Outstandings on the Seventh Amendment Effective Date, such 30 days shall be extended to the date when the Borrowing Base in respect of the spring 2021 Borrowing Base redetermination as deferred as provided in Section 4 of the Seventh Amendment becomes effective.”
(g) | Section 7.17 is hereby amended and restated in its entirety to the following: |
Minimum Hedge Volumes. Subject to compliance with Section 7.3, the Borrower and its Restricted Subsidiaries shall, on each Test Date have in effect Hedging Contracts consisting of swaps, collars and puts (but not three-way collars that include a short put and basis differential swaps) at strike prices reasonably satisfactory to the Administrative Agent for notional volumes in respect of oil and gas (calculated separately) and entered into not for speculative purposes which notional volumes (when aggregated with the notional volumes under other transactions under Hedging Contracts then in effect (other than three-way collars that include a short put and basis differential swaps)) are no less than, for each of the eighteen (18) consecutive calendar months that follows the last day of the month in which such Test Date occurs (or if less, the number of calendar months that follow such Test Date through the month ending September 30, 2022) at least 50% of the reasonably anticipated Projected Oil Production and Projected Gas Production (calculated separately) from the Proved Developed Producing Reserves; provided that for purposes of the foregoing, (i) volumes hedged by swaps (and not collars and puts) in any month shall constitute at least 50% of all volumes hedged in respect of such month calculated separately for Projected Oil Production and Projected Gas Production and (ii) all transactions for hedge volumes in respect of Projected Gas Production entered into after December 13, 2020 but on or before the last day of the Gas Hedge Waiver Period shall be swaps (and not collars or puts). The Borrower agrees that it will not terminate or unwind any swaps in place for gas during the Gas Hedge Waiver Period. For the avoidance of doubt, nothing in the foregoing (i) or (ii) will require the Borrower to unwind, replace or restructure any Exhibit B Hedging Contract to be in compliance with this Section 7.17.
(a) | the representations and warranties of the Borrower and its Restricted Subsidiaries contained in the Loan Documents (as amended hereby) are true and correct in all material respects (unless such representation or warranty is qualified by materiality, in which event such representation or warranty shall be true and correct in all respects) on and as of the Seventh Amendment Effective Date, other than those representations and warranties that expressly relate solely to a specific earlier date, which shall remain correct in all material respects as of such earlier date (unless such representation or warranty is qualified by materiality, in which event such representation or warranty is true and correct in all respects as of such earlier date); |
(b) | the execution, delivery and performance by the Borrower and the Guarantor Subsidiaries of this Seventh Amendment are within their corporate or limited liability company powers, have been duly authorized by all necessary action, require, in respect of any of them, no action by or in respect of, or filing with, any governmental authority which has not been performed or obtained and do not contravene, or constitute a default under, any provision of Law or regulation or the articles of incorporation or the bylaws of any of them or any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or the Guarantor Subsidiaries or result in the creation or imposition of any Lien on any asset of any of them except as contemplated by the Loan Documents other than, in each case, as would not reasonably be expected to cause or result in a Material Adverse Change; |
(c) | the execution, delivery and performance by the Borrower and the Guarantor Subsidiaries of this Seventh Amendment constitutes the legal, valid and binding obligation of each of them enforceable against them in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency or similar Laws of general application relating to enforcement of creditors’ rights; and |
(d) | no Default or Event of Default has occurred and is continuing. |
(a) | The Administrative Agent shall have received counterparts of this Seventh Amendment duly executed by the Borrower, the Guarantor Subsidiaries and the requisite Lenders. |
(b) | The Administrative Agent shall have received all fees and expenses to the extent invoiced at least one (1) Business Day prior to the Seventh Amendment Effective Date. |
is a party. All references to the Credit Agreement in any Loan Document or in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as hereby amended. This Seventh Amendment is a Loan Document.
Seventh Amendment or which may occur in the future under the Credit Agreement and/or the other Loan Documents.
(Signatures appear on following pages)
IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written.
BORROWER:
W&T OFFSHORE, INC.
By: |
/s/ Janet Yang |
Name: Janet Yang
Title: |
Executive Vice President and Chief |
Financial Officer
ACKNOWLEDGED AND ACCEPTED BY:
W & T ENERGY VI, LLC
By:/s/ Janet Yang
Name:Janet Yang
Title: |
Executive Vice President and Chief
|
W & T ENERGY VII, LLC
By:/s/ Janet Yang
Name:Janet Yang
Title: |
Executive Vice President and Chief
|
TORONTO DOMINION (TEXAS) LLC,
as Administrative Agent
By:/s/ Hughroy Enniss
Name:Hughroy Enniss
Title:Authorized Signatory
THE TORONTO-DOMINION BANK, NEW
YORK BRANCH, as Lender
By:/s/ Hughroy Enniss
Name:Hughroy Enniss
Title:Authorized Signatory
THE TORONTO-DOMINION BANK, NEW
YORK BRANCH, as Issuer
By:/s/ Hughroy Enniss
Name:Hughroy Enniss
Title:Authorized Signatory
MORGAN STANLEY BANK, N.A., as Lender
By:/s/ Marisa Moss
Name:Marisa Moss
Title:Authorized Signatory
SOCIÉTÉ GENERALE,
as Lender
By:/s/ Roberto Simon
Name:Roberto Simon
Title:Managing Director
SOCIÉTÉ GENERALE,
as Issuer
By:/s/ Roberto Simon
Name:Roberto Simon
Title:Managing Director
ZIONS BANCORPORATION, N.A. DBA
AMEGY BANK,
as a Lender
By:/s/ Patty Smolik
Name:Patty Smolik
Title:Vice President
ABN AMRO CAPITAL USA LLC,
as a Lender
By:/s/ Darrell Holley
Name:Darrell Holley
Title:Managing Director
By:/s/ Elizabeth Johnson
Name:Elizabeth Johnson
Title:Executive Director
Exhibit 10.3
$215,000,000.00
CREDIT AGREEMENT
among
AQUASITION LLC,
as Borrower,
AQUASITION II LLC,
as Co-Borrower,
and
MUNICH RE RESERVE RISK FINANCING, INC.,
as Lender
Dated as of May 19, 2021
TABLE OF CONTENTS
Page
1.1 Defined Terms1
2.1 Loan Commitment24
2.3 Maturity Date24
2.10 Increased Costs29
2.12 Mitigation Obligations32
3.5 No Legal Bar36
3.8 No Default36
3.12 Transaction Documents38
3.13 Intellectual Property39
3.15 Federal Regulations39
3.16 Labor Matters39
3.18 Regulations39
3.20 Use of Proceeds40
3.21 Environmental Matters40
i
3.23 Security Documents41
3.25 Gas Imbalances42
3.26 Hedging Agreements42
3.27 Reserve Reports42
3.28 Sale of Production43
3.29 Contingent Obligations43
3.30 Bank Accounts43
3.31 Material Contracts43
5.12 Environmental Laws56
5.14 Collateral Matters57
5.15 Title Matters58
5.17 Use of Proceeds59
5.19 Patriot Act Compliance59
5.20 Further Assurances60
5.21 Post-Closing Covenants60
6.1 Indebtedness60
ii
6.6 Expenditures66
6.7 Investments66
6.12 Lines of Business67
6.14 Hedging Agreements68
6.15 New Subsidiaries68
6.16 Use of Proceeds68
6.18 Bank Accounts68
6.21 Capital Stock69
7.1 Events of Default70
8.1 Collateral Matters74
9.9 Counterparts79
9.10 Severability79
9.12 Governing Law79
9.14 Acknowledgments80
9.15 Confidentiality80
9.18 Accounting Changes82
9.19 Waivers of Jury Trial83
iii
SCHEDULES:
1.1(a)Mortgaged Properties (Omitted)
1.1(b)Scheduled Debt Service Payment Amount
1.1(d)Transaction Documents (Omitted)
2.1Commitment (Omitted)
3.1(b)Financial Condition (Omitted)
3.4Consents, Authorizations, Filings and Notices (Omitted)
3.5No Legal Bar (Omitted)
3.6Existing Indebtedness (Omitted)
3.10Insurance (Omitted)
3.11Bonds (Omitted)
3.19Capital Stock Ownership (Omitted)
3.21Environmental Matters (Omitted)
3.23(a)UCC Filing Jurisdictions (Omitted)
3.23(b)Mortgage Filing Jurisdictions (Omitted)
3.25Gas Imbalances (Omitted)
3.28Sale of Production (Omitted)
3.30Business Proceeds (Omitted)
3.31Material Contracts (Omitted)
3.32Burdensome Restrictions (Omitted)
5.13Commodity Price Protection (Omitted)
AForm of Borrowing Notice (Omitted)
BForm of Compliance Certificate (Omitted)
CForm of Depositary Agreement
DForm of Security Agreement
EForm of Mortgage
FForm of Solvency Certificate (Omitted)
GForm of Pledge Agreement
HForm of Guaranty
IForm of Monthly Operating Report (Omitted)
iv
This CREDIT AGREEMENT (this “Agreement”), dated as of May 19, 2021, is by and among Aquasition LLC, a Delaware limited liability company (“Borrower”), Aquasition II LLC, a Delaware limited liability company (“Co-Borrower”) and Munich Re Reserve Risk Financing, Inc., a Delaware corporation, as lender (in such capacity, together with its permitted successors and assigns in such capacity, “Lender”).
In consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree as follows:
Acceptable Security Interest: in any Property, a Lien which (a) exists in favor of Lender for the benefit of the Secured Parties, (b) is superior to all Liens or rights of any other Person in the Property encumbered thereby (other than Permitted Liens), (c) secures the Obligations, and (d) is perfected and enforceable.
Accounting Change: as defined in Section 9.18.
AFE: as defined in the Management Services Agreement.
Affiliate: as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the possession of the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ability to exercise voting power, by contract or otherwise. Notwithstanding the foregoing, no Lender shall be deemed to be an Affiliate of the Loan Parties.
Agreement: this Credit Agreement, as amended, restated, amended and restated, replaced, supplemented or otherwise modified from time to time.
Anti-Corruption Laws: all laws, rules, and regulations of any jurisdiction applicable to Co-Borrower or Borrower or any of their Subsidiaries from time to time concerning or relating to bribery or corruption.
Applicable Premium: with respect to the Loan being prepaid or repaid, (a) if such prepayment or repayment is made on any date from the Closing Date through and including the third anniversary of the Closing Date, a Cash amount equal to the present value (as calculated by Lender using the Applicable Rate) of the aggregate Dollar amount of scheduled interest payments on the Loan being so prepaid or repaid that would have become due and payable on any Required Payment Date from the applicable Prepayment Date through and including the Maturity Date, (b) if such prepayment or repayment is made on any date from the third anniversary of the Closing Date through and including the fourth anniversary of the Closing Date, a Cash amount equal to 3.0% of the prepaid or repaid principal amount of the Loan, (c) if such prepayment or repayment is made on any date from the fourth anniversary of the Closing Date through and including the
1
fifth anniversary of the Closing Date, a Cash amount equal to 2.0% of the prepaid or repaid principal amount of the Loan, and (d) if such prepayment or repayment is made on any date from the fifth anniversary of the Closing Date through and including the sixth anniversary of the Closing Date, a Cash amount equal to 1.0% of the prepaid or repaid principal amount of the Loan, in each case as calculated by Lender. From the sixth anniversary of the Closing Date through and including the Maturity Date, there shall not be an Applicable Premium.
Applicable Rate: an amount equal to 7%.
Assignment Agreement: collectively, (a) that certain Assignment and Bill of Sale (Oil and Gas Leases) between Services Provider and W&T Energy VI, LLC, as assignors, and Borrower, as assignee, dated as of the date hereof, (b) that certain Assignment and Bill of Sale (Marketing Agreements) between Services Provider, as assignor, and Borrower, as assignee, dated as of the date hereof, (c) that certain Assignment and Bill of Sale (Gathering and Processing Assets) between Services Provider, as assignor and Co-Borrower, as assignee, dated as of the date hereof, and (d) that certain Assignment and Bill of Sale (Marketing Agreements) between Services Provider, as assignor and Co-Borrower, as assignee, dated as of the date hereof.
Authorized Person: with respect to any Loan Party, any Manager (as defined in the Constituent Documents of such Loan Party) of such Loan Party.
Board: the Board of Governors of the Federal Reserve System of the United States (or any successor).
BOEM: the Bureau of Ocean Energy Management, Regulation and Enforcement, including any successor agency thereto.
Borrower: as defined in the preamble hereto.
Borrowing: a borrowing consisting of the Loan made by Lender.
Borrowing Notice: with respect to the request for borrowing of the Loan hereunder, a notice from Borrower and Co-Borrower, substantially in the form of, and containing the information prescribed by, Exhibit A, delivered to Lender.
BSEE: the Bureau of Safety and Environmental Enforcement, including any successor agency thereto.
Btu: British Thermal units, a measure of heating value.
Building: any Building (as defined in the applicable Flood Laws) or Manufactured (Mobile) Home (as defined in the applicable Flood Laws).
Business Day: a day other than a Saturday, Sunday or other day on which commercial banks in New York City, New York, or Houston, Texas are authorized or required by law to close.
Business Proceeds: all Monthly Proceeds Revenue and any other source of income or payment received by or on behalf of Borrower, Co-Borrower or any other Loan Party, including
2
(i) any other proceeds from the sales of Hydrocarbons, (ii) any Net Cash Proceeds, (iii) proceeds from Hedging Agreements, (iv) proceeds from third party producers for gathering, transportation and processing of Hydrocarbons, and (v) any other Cash or Cash Equivalents received by Borrower, Co-Borrower or any other Loan Party from whatever source; provided that the advance of the Loan shall not constitute “Business Proceeds.”
Capital Expenditures: for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries during such period which are required to be capitalized under GAAP on a balance sheet of such Person, utilizing the “full cost” method of accounting; provided that, in any event, “Capital Expenditures” shall exclude: (i) expenditures for leasehold improvements for which such Person is reimbursed in Cash, is owed a reimbursement in Cash or otherwise receives a credit to use towards amounts payable, in each case, by a Person who is not an Affiliate; and (ii) expenditures to the extent they are made with the Cash and Cash Equivalent proceeds of equity contributions.
Capital Lease: any lease of a Person with respect to (or other arrangement conveying to a Person the right to use) any Property or a combination thereof, the obligations under which are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP.
Capital Lease Obligations: with respect to any Person, the obligations of such Person to pay rent or other amounts under any Capital Lease and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.
Capital Stock: any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent membership, partnership or other ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.
Cash: money, currency or a credit balance in any demand or deposit account.
Cash Equivalents: (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, Eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by S&P or P-2 by Moody’s, or carrying an equivalent rating by a nationally recognized statistical rating organization, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political
3
subdivision or taxing authority of any such state, commonwealth or territory, the securities of which state, commonwealth, territory, political subdivision or taxing authority (as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by Lender or any commercial bank satisfying the requirements of clause (b) of this definition; and (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.
Casualty Recovery Event: any settlement of or payment in respect of any Property or casualty insurance claim or any condemnation proceeding (or proceeding in lieu thereof) relating to any asset of any Loan Party.
Change in Law: the occurrence after the date of this Agreement or, with respect to Lender, such later date on which Lender becomes a party to this Agreement of (a) the adoption of or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by any Governmental Authority or (c) compliance by Lender (or, for purposes of Section 2.10(b), by any lending office of Lender or by Lender’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.
Change of Control: the occurrence of any of the following events: (a) Pledgor shall cease to have the power to vote or direct the voting of securities having a majority of the ordinary voting power for the election of directors (or Persons performing similar functions) of Borrower or Co-Borrower (in each case, determined on a fully diluted basis); (b) Pledgor and Services Provider shall cease to own and control, of record and beneficially, directly or indirectly, 100 % of each class of outstanding Capital Stock of Borrower or Co-Borrower, except as otherwise permitted by Section 6.21; or (c) Borrower or Co-Borrower shall cease to own and control, of record and beneficially, directly or indirectly, 100% of each class of outstanding Capital Stock of each Subsidiary of Borrower or Co-Borrower (as applicable), if any, except as otherwise permitted by Sections 6.3 or 6.4.
Closing Date: the date on which the conditions precedent set forth in Section 4.1 shall have been satisfied.
Co-Borrower: as defined in the preamble hereto.
Code: the Internal Revenue Code of 1986, as amended from time to time and any successor statute or statutes, together with all rules and regulations promulgated with respect thereto.
4
Collateral: all Property and interests in Property and any proceeds thereof of the Loan Parties and Co-Borrower, now owned or hereafter acquired, that is subject to a Lien, or that, under the terms of any Security Document, is purported to be subject to such a Lien, in each case, for the benefit of the Secured Parties. For the avoidance of doubt, the parties do not intend the Collateral to include and in no event shall the Collateral include, or the Security Documents encumber, any Real Property of Co-Borrower, any Building or any other Excluded Asset.
Collateral Coverage Ratio: as of any date of determination, the ratio equal to (a) the sum of (i) the Reserve Value as of the date of determination, plus (ii) an amount equal to the difference, if positive, between (A) the Excess Cash Balance, minus (B) the Debt Service Reserve Required Amount, in each case, evaluated as of the most recently transpired Quarterly Required Payment Date; divided by (b) the aggregate principal amount outstanding under the Loan as of the date of determination
Commitment: the commitment of Lender to make the Loan as set forth on Schedule 2.1 in the amount of $215,000,000.00, which may be reduced or terminated pursuant to Article VII or otherwise under this Agreement.
Commodity Exchange Act: the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
Compliance Certificate: a certificate duly executed by a Responsible Officer, substantially in the form of Exhibit B.
Constituent Documents: with respect to any Person, (a) the articles or certificate of incorporation, certificate of formation or partnership, articles of organization, limited liability company agreement or agreement of limited partnership (or the equivalent organizational documents) of such Person, (b) the by-laws (or the equivalent governing documents) of such Person and (c) any document setting forth the manner of election and duties of the directors or managing members of such Person (if any) and the designation, amount or relative rights, limitations and preferences of any class or series of such Person’s Capital Stock.
Contingent Obligation: of a Person, any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including any comfort letter, take or pay contract or the obligations of any such Person as general partner of a partnership with respect to the liabilities of the partnership.
Contractual Obligation: with respect to any Person, any term, condition or provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound.
Control Account: as defined in the Depositary Agreement.
Control Agreement: an agreement in form and substance reasonably satisfactory to Lender which provides for Lender to have “control” (as defined in Section 8-106 of the UCC, as such term
5
relates to investment property (other than certificated securities or commodity contracts) or as used in Section 9-106 of the UCC, as such term relates to commodity contracts, or as used in Section 9-104(a) of the UCC, as such term relates to deposit accounts).
Debt Service Reserve Required Amount: as of any Quarterly Required Payment Date, the aggregate amount of the Scheduled Debt Service Payment Amounts during the period from (and excluding) such Quarterly Required Payment Date through (and including) the next two (2) Quarterly Required Payment Dates immediately following such Quarterly Required Payment Date.
Default: any of the events specified in Article VII, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.
Default Rate: the Applicable Rate plus 2%.
Defensible Title: good and indefeasible title, free and clear of all Liens other than Permitted Liens.
Depositary Agreement: that certain Depositary Agreement among Borrower, Lender and Depositary Bank, substantially in the form of Exhibit C, entered into on the date hereof and as the same may be amended, restated, amended and restated, replaced, supplemented or otherwise modified from time to time.
Depositary Bank: UMB Bank, N.A., or such successor bank approved by Borrower and Lender.
Designated Assets: collectively, “Assigned Interests” and the “Marketing Agreements” each as defined in the Assignment Agreements, which were acquired, directly or indirectly, by Borrower pursuant to the Assignment Agreements.
Designated Oil and Gas Assets Present Value: with respect to any Proved Developed Producing Reserves, the aggregate net present value of such Oil and Gas Properties calculated before income Taxes, but after reduction for royalties, ordinary lease operating expenses, severance and ad valorem Taxes, Permitted Capital Expenditures, and abandonment costs discounted at the Applicable Rate; using assumptions regarding future prices of Hydrocarbon sales based on Hedged Prices and Hedged Volumes, and the Reserve Report Price Deck on all unhedged volumes, adjusted for historical price differentials and Btu and quality adjustments. The Designated Assets Present Value shall be calculated and included as part of each Reserve Report, and such Designated Assets Present Value shall remain in effect until the delivery of the next Reserve Report to be delivered.
Disposition: with respect to any Property, any sale, lease, Sale and Leaseback Transaction, assignment, farm-out, exchange, conveyance, transfer, Casualty Recovery Event or other disposition (including by way of a merger or consolidation) of such Property or any interest therein (excluding the creation of any Permitted Lien on such Property but including the sale or factoring at maturity or collection of any accounts or permitting or suffering any other Person to acquire any interest (other than a Permitted Lien) in such Property) or the entering into any agreement to do any of the foregoing; and the terms “Dispose” and “Disposed of” shall have correlative meanings.
6
Disqualified Stock: as to any Person, any Capital Stock of such Person that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or otherwise (including upon the occurrence of an event) requires the payment of dividends (other than dividends payable solely in Capital Stock which does not otherwise constitute Disqualified Stock) or matures or is required to be redeemed (pursuant to any sinking fund obligation or otherwise) or is convertible into or exchangeable for Indebtedness or is redeemable at the option of the holder thereof, in whole or in part, at any time on or prior to the date six months after the Maturity Date.
Distributable Cash Balance Cap: an amount equal to the difference, if positive, between (a) the Excess Cash Balance, minus (b) the Debt Service Reserve Required Amount, in each case, evaluated as of the most recently transpired Quarterly Required Payment Date.
Dollars and $: lawful currency of the United States of America.
Environmental Laws: any and all applicable laws, rules, orders, regulations, statutes, ordinances, codes, decrees or other legally enforceable requirements (including common law) of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning pollution, protection of the environment, natural resources or human or employee health and safety (to the extent such health and safety relate to exposure to Materials of Environmental Concern), as has been, is now, or may at any time hereafter be, in effect, including the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. §5101 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq., the Clean Air Act, 42 U.S.C. §7401 et seq., the Toxic Substances Control Act, 15 U.S.C. §2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. §136 et seq., the Oil Pollution Act of 1990, 33 U.S.C. §2701 et seq., the Occupational Safety and Health Act, 29 U.S.C. §651 et seq., and the regulations promulgated pursuant thereto, and all analogous state or local statutes and regulations.
Environmental Permits: any and all permits, licenses, approvals, registrations, notifications, exemptions and other authorizations required under or issued pursuant to any Environmental Law.
ERISA: the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
ERISA Affiliate: any trade or business (whether or not incorporated) under common control with any Loan Party or Pledgor within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code) or Section 4001 of ERISA.
Event of Default: any of the events specified in Article VII; provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied with respect to such Event of Default.
7
Excess Cash Balance: an amount equal to the Control Account balance as of the most recently transpired Quarterly Required Payment Date after giving effect to distributions made or to be made on such date pursuant to Section 2.14(a) through Section 2.14(g).
Excluded Assets: “Excluded Property” as defined in the Security Agreement.
Excluded Swap Obligation: with respect to any Loan Party, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee Obligation of such Loan Party of, or the grant by such Loan Party of a security interest to secure, such Swap Obligation or any Guarantee Obligation in respect thereof is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the U.S. Commodity Futures Trading Commission (or the application or official interpretation thereof) by virtue of such Loan Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee Obligations of such Loan Party or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one Swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Swaps for which such Guarantee Obligation or security interest is or becomes illegal.
Excluded Taxes: any of the following Taxes imposed on or with respect to Lender or its assignee or required to be withheld or deducted from a payment to Lender or its assignee, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of Lender or its assignee being organized under the laws of, or having its principal office or its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. Federal withholding Taxes imposed on amounts payable to or for the account of Lender or its assignee with respect to an applicable interest on a Loan or Commitment pursuant to a law in effect on the date on which (i) Lender or its assignee acquires such interest in the Loan or Commitment or (ii) Lender or its assignee changes its lending office, except in each case to the extent that, pursuant to Section 2.11, amounts with respect to such Taxes were payable either to Lender immediately before Lender’s assignee acquired the applicable interest in a Loan or Commitment or to Lender or its assignee immediately before it changed its lending office and (c) Taxes attributable to Lender’s or its assignee’s failure to comply with Section 2.11(e) and (d) any U.S. Federal withholding Taxes imposed under FATCA.
Fair Market Value: the value that would be paid by a willing third-party buyer to an unaffiliated willing seller on an arms-length basis in a transaction not involving distress or necessity of either party.
FATCA: Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version of the Code that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
8
Flood Laws: (a) the National Flood Insurance Act of 1994 (which comprehensively revised the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973) as now or hereafter in effect or any successor statute thereto, (b) the Flood Insurance Reform Act of 2004 as now or hereafter in effect or any successor statute thereto, (c) the Biggert-Waters Flood Insurance Reform Act of 2012 as now or hereafter in effect or any successor statute thereto, and (d) all other applicable Requirements of Law relating to policies and procedures that address requirements placed on federally regulated lenders relating to flood matters, in each case, as now or hereafter in effect or any successor statute thereto.
Floor Contracts: put option contracts that protect against falling oil and gas prices and do not require any payments in respect thereof other than an initial premium or purchase price. For the avoidance of doubt, Floor Contracts do not include Swaps or collars.
GAAP: generally accepted accounting principles in the United States of America as in effect from time to time, applied in a manner consistent with that used in preparation of the Pro Forma Balance Sheets.
Gas Imbalance: (a) a sale or utilization by any Loan Party of volumes of natural gas in excess of its gross working interest in such Property, (b) receipt of volumes of natural gas into a gathering system and redelivery by any Loan Party of a larger or smaller volume of natural gas under the terms of the applicable transportation agreement, or (c) delivery to a gathering system of a volume of natural gas produced by any Loan Party that is larger or smaller than the volume of natural gas such gathering system redelivers for the account of any Loan Party, as applicable.
Gathering and Processing Properties: all tangible Property used in (a) gathering, compressing, treating, processing and transporting natural gas, crude, condensate and natural gas liquids, (b) fractionating and transporting natural gas, crude, condensate and natural gas liquids, (c) processing natural gas, crude, condensate and natural gas liquids, and (d) water distribution, supply, treatment and disposal services thereof, including gathering systems, processing plants, storage facilities, surface leases, rights of way and servitudes related to each of the foregoing.
Gathering and Processing System: means the Gathering and Processing Properties of Co-Borrower currently or in the future, owned or leased from time to time.
Governmental Authority: the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
Guarantee Obligation: as to any Person (the “guaranteeing person”), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit), if to induce the creation of such obligation of such other Person, the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the “primary obligations”) of any other third Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any
9
such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services, in each case, primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (A) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (B) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by Borrower or Co-Borrower (as applicable) in good faith.
Guaranty: the Guaranty to be executed and delivered by Pledgor to Lender, substantially in the form of Exhibit H, as the same may be amended, restated, amended and restated, replaced, supplemented or otherwise modified from time to time.
Hedge Termination Value: in respect of any one or more Hedging Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedging Agreements: (a) for any date on or after the date such Hedging Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s); and, (b) for any date prior to the date referenced in clause (a), the “Exposure” (as defined in the form Credit Support Annex (Bilateral Form) (ISDA Agreements Subject to New York Law Only) published in 1994 by the International Swaps and Derivatives Association, Inc., or any such successor form, as applicable) with respect to each such Hedging Agreement, calculated as of such date.
Hedged Prices and Hedged Volumes: prices and volumes, as the case may be, of Hydrocarbons in barrels of oil or natural gas liquids or MMBtu of gas supported by confirmations for Hedging Agreements permitted by Section 6.14.
Hedging Agreement: with respect to any Person, any agreement or arrangement, or any combination thereof, consisting of commodity Swaps, caps, collar agreements or similar arrangements relating to oil and gas or other hydrocarbon prices, transportation or basis costs or differentials or other similar financial factors, that are customary in the oil and gas business and entered into by such Person in the ordinary course of its business for the purpose of limiting or managing risks associated with fluctuations in such prices, costs, differentials or similar factors. For avoidance of doubt, Hedging Agreement shall include any ISDA Master Agreement (including related schedules and annexes thereto) (or other similar master agreement) that governs the specific transactions that constitute a Hedging Agreement.
10
Highest Lawful Rate: with respect to Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Loan or on other Indebtedness under laws applicable to Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof.
Hydrocarbon Interests: all presently existing or after-acquired rights, titles and interests in and to oil and gas leases, oil, gas and mineral leases, other Hydrocarbon leases, mineral interests, mineral servitudes, overriding royalty interests, royalty interests, net profits interests, production payment interests and other similar interests. Unless otherwise qualified, all references to a Hydrocarbon Interest or Hydrocarbon Interests in this Agreement shall refer to a Hydrocarbon Interest or Hydrocarbon Interests of the Loan Parties.
Hydrocarbons: collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals, including without limitation, sulfur, and all products therefrom, in each case whether in a natural or a processed state.
Indebtedness: of any Person at any date, without duplication (a) all obligations of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under acceptance, letter of credit or similar facilities, (g) all Disqualified Stock of such Person, (h) all obligations of such Person relating to any production payment or in respect of production imbalances (but excluding production imbalances arising in the ordinary course of business), (i) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (h) above; (j) all obligations of the kind referred to in clauses (a) through (i) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation; and (k) all obligations (netted, to the extent provided for therein) of such Person in respect of Hedging Agreements (including obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder). The Indebtedness of a Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor.
Indemnified Liabilities: as defined in Section 9.6(a).
11
Indemnified Taxes: (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a) hereof, Other Taxes.
Indemnitee: as defined in Section 9.6(a).
Independent Accountants: Ernst & Young LLP or such other independent certified public accountants reasonably acceptable to Lender.
Independent Director: as defined in Section 4.1(b).
Initial Hedging: as defined in Section 5.13.
Intellectual Property: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, state, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, service-marks, technology, know-how and processes, licenses or rights to use databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations and other technical information, formulas, trade secrets and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.
Investment: for any Person (a) the acquisition (whether for Cash, Property of such Person, services or securities or otherwise) of Capital Stock, bonds, notes, debentures, debt securities, partnership or other ownership interests or other securities of, or any Property constituting an ongoing business of, or the making of any capital contribution to, any other Person or any agreement to make any such acquisition or capital contribution, (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies sold in the ordinary course of business), (c) the entering into of any Guarantee Obligation, or other Contingent Obligation, and (d) any other investment that would be classified as such on a balance sheet of such Person in accordance with GAAP.
Knowledge: the knowledge that any Responsible Officer of Pledgor, Borrower or Co-Borrower, as applicable, actually has after making reasonable inquiry and reasonable diligence for a Person in the role of such Responsible Officer of Pledgor, Borrower or Co-Borrower with respect to the particular fact or matter in question.
Land Costs: as defined in the Management Services Agreement.
Lender: as defined in the preamble hereto.
Lien: any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment or performance of any Indebtedness or other obligation (including any
12
conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC or comparable law of any jurisdiction naming the owner of the asset to which such Lien relates as debtor).
Loan: as defined in Section 2.1(a).
Loan Documents: this Agreement, the Security Documents, the Guaranty, the Note, each Qualified Hedging Agreement, and each certificate, agreement, instrument, waiver, consent or document executed by a Loan Party and delivered to Lender or any Affiliate thereof, in connection with or pursuant to any of the foregoing.
Loan Party or Loan Parties: Borrower and any Subsidiary of Borrower.
LOE: as defined in the Management Services Agreement.
Management Services Agreement: that certain Management Services Agreement between Borrower, Co-Borrower and Services Provider dated as of the date hereof.
Material Adverse Effect: a material adverse effect on any of (a) the business, assets, Property or condition (financial or otherwise) of the Loan Parties taken as a whole, (b) the legality, validity or enforceability of any provision of any Loan Document or the rights and remedies of the Secured Parties thereunder, (c) the perfection or priority of the Liens granted pursuant to the Security Documents or (d) the ability of any Loan Party to timely perform any of its obligations under any of the Loan Documents to which it is a party.
Material Contract: as defined in Section 3.31.
Material Environmental Amount: an amount or amounts payable or reasonably likely to become payable by any Loan Party, individually or in the aggregate in excess of $20,000,000.00 for costs to comply with or any liability under any Environmental Law, failure to obtain or comply with any Environmental Permit, costs of any investigation, and any remediation, of any Material of Environmental Concern, and any other cost or liability, including compensatory damages (including damages to natural resources), punitive damages, fines, and penalties pursuant to any Environmental Law.
Materials of Environmental Concern: any petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, natural gas or natural gas products, mercury, hydrogen sulfide, drilling fluids, produced water, asbestos, pollutants, contaminants, radioactive materials, and any other substance of any kind, that is regulated pursuant to or could give rise to liability under any Environmental Law.
Maturity Date: as defined in Section 2.3.
Midstream Expenditures: as defined in the Management Services Agreement.
MMbtu: one million Btu.
13
Monthly Operating Report: a report substantially in the form of Exhibit I, setting forth, (a) a statement of net production and sales proceeds of all Hydrocarbons produced from the Oil and Gas Properties, by category of production (natural gas, oil, natural gas liquids and sulfur), (b) LOE, (c) realized price for the sale of Hydrocarbons produced from the Oil and Gas Properties with respect to the NYMEX/CS Contract Price and NYMEX/NG Contract Price, and (d) any unscheduled maintenance, shut-in or other adverse operational issue affecting any well on the Oil and Gas Properties (or affecting any infrastructure servicing any such well) or the Gathering and Processing System.
Monthly Proceeds Revenue: as defined in the Management Services Agreement.
Moody’s: Moody’s Investors Service, Inc., or its successor.
Mortgaged Properties: the Oil and Gas Properties listed on Schedule 1.1(a), together with any additional Oil and Gas Properties which any Loan Party may hereafter acquire, in each case as to which Lender for the benefit of the Secured Parties is granted, or is purported to be granted, a Lien pursuant to one or more Mortgages (excluding such Properties, or any interest therein, which may from time to time be released from the Mortgages pursuant to the terms of this Agreement).
Mortgages: each of the mortgages made by any Loan Party in favor of, or for the benefit of, Lender for the benefit of the Secured Parties, substantially in the form of Exhibit E (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage is to be recorded) and in form and substance reasonably acceptable to Lender.
Multiemployer Plan: a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA.
Net Cash Proceeds: (a) in connection with any Disposition, the proceeds thereof in the form of Cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Disposition, net of (i) amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Disposition (other than any Lien pursuant to a Security Document), (ii) attorneys’ fees, accountants’ fees, investment bank fees and other reasonable and customary fees and expenses actually incurred in connection therewith and (iii) Taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements); and (b) in connection with any incurrence of Indebtedness for borrowed money, the Cash proceeds received from such incurrence, net of attorneys’ fees, accountants’ fees, investment bank fees, underwriting discounts and commissions and other reasonable and customary fees and expenses actually incurred in connection therewith; provided that in the case of each of clauses (a)(i), (a)(ii), (a)(iii) and (b), evidence of such costs and payments is provided to Lender in form and substance reasonably satisfactory to it.
14
Note: means that certain promissory term note in the original principal amount of $215,000,000.00 executed jointly and severally by the Borrower and the Co-Borrower and made payable to Lender of even date herewith.
NYMEX/CS Contract Price: the closing price (expressed in $/bbl) for the applicable production month of the NYMEX CS Crude Oil Futures Contract (available at http://www.cmegroup.com/trading/energy/crude-oil/west-texas-intermediate-wti-crude-oil-calendar-swap-futures_contract_specifications.html).
NYMEX/NG Contract Price: the closing price (expressed in $/MMBtu but assumed for purposes of this definition to be the equivalent of $/Mcf) for the applicable production month of the NYMEX NG Futures Contract (available at http://www.cmegroup.com/trading/energy/natural-gas/natural-gas_contract_specifications.html).
Obligations: the unpaid principal of and interest on (including, interest accruing after the maturity of the Loan and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Loan Party, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loan and all other obligations and liabilities of any Loan Party to Lender or any Secured Qualified Counterparty party to a Qualified Hedging Agreement (other than Excluded Swap Obligations), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, any Qualified Hedging Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, fees, reimbursement obligations, indemnities, costs, expenses (including, all fees, charges and disbursements of counsel to Lender that are required to be paid by any Loan Party pursuant hereto) or otherwise.
Oil and Gas Properties: Hydrocarbon Interests; the properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including all units created under orders, regulations and rules of any Governmental Authority having jurisdiction) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, the lands covered thereby and all oil in tanks and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and properties in anywise appertaining, belonging, affixed or incidental to the Hydrocarbon Interests, properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including the Designated Assets, flowlines, wellheads, control systems, umbilicals, manifolds, jumpers, steel tube and thermoplastic hose flying leads, pipelines, production platforms, risers and subsea production
15
systems, oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, barges, boats, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. Unless otherwise qualified, all references to an Oil and Gas Property or to Oil and Gas Properties in this Agreement shall refer to an Oil and Gas Property or Oil and Gas Properties of the Loan Parties.
Operating Account: account number 9872567110 located at the Depositary Bank.
Other Connection Taxes: with respect to Lender or its assignee, Taxes imposed as a result of a present or former connection between Lender or its assignee and the jurisdiction imposing such Tax (other than connections arising from Lender or its assignee having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in the Loan or any Loan Document).
Other Taxes: any and all present or future stamp or documentary, intangible, recording or filing Taxes or any other excise Taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.
Parent Company: with respect to any Person, any direct or indirect parent thereof who owns, directly or indirectly, 100% of the equity interests of such Person.
Patriot Act: as defined in Section 9.20.
Payment in Full: the Commitment has expired or been terminated and the principal of and interest on the Loan and all fees payable hereunder and all other amounts payable under the Loan Documents (other than indemnities and other Contingent Obligations not then due and payable and as to which no claim has been made) shall have been paid in full in Cash.
Pension Plan: a pension plan (as defined in Section 3(2) of ERISA), including any Multiemployer Plan, subject to Title IV of ERISA to Section 412 of the Code, which any Loan Party, Pledgor or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions or with respect to which any Loan Party, Pledgor or any ERISA Affiliate has any liability.
Permits: any and all franchises, licenses, leases, permits, approvals, consents, notifications, certifications, registrations, authorizations, exemptions, variances, qualifications, easements and rights of way of any Governmental Authority or third party.
Permitted Asset Swap: the Disposition of Oil and Gas Properties made by a Loan Party in exchange for other Oil and Gas Properties so long as the Fair Market Value of the Oil and Gas Properties to be Disposed of are substantially equivalent to the Fair Market Value of the received
16
Oil and Gas Properties (in any case, as reasonably determined by the Board of Directors or the equivalent governing body of Borrower, or its designee, and, if the Fair Market Value of the Oil and Gas Properties is or exceeds $250,000, Borrower shall deliver a certificate of a Responsible Officer of Borrower certifying to that effect).
Permitted Capital Expenditures: as defined in Section 6.6.
Permitted Indebtedness: as defined in Section 6.1.
Permitted Liens: the collective reference to (a) in the case of Collateral other than Pledged Capital Stock, Liens permitted by Section 6.2 and (b) in the case of Collateral consisting of Pledged Capital Stock, (i) Liens created under the Loan Documents and (ii) non-consensual Liens permitted by Section 6.2 to the extent arising by operation of law.
Person: an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.
Petroleum Engineers: Netherland Sewell & Associates, Inc. or such other petroleum engineers of recognized national standing as may be selected by Borrower with the prior consent of Lender (not to be unreasonably withheld, conditioned or delayed).
Plan: an employee benefit plan (as defined in Section 3(3) of ERISA) which any Loan Party, Pledgor or any ERISA Affiliate sponsors or maintains or to which any Loan Party, Pledgor or any ERISA Affiliate makes, is making, or is obligated to make contributions, including any Pension Plan or any Retiree Medical Plan.
Plan Assets: “plan assets” within the meaning of the Plan Assets Regulation or any other relevant legal authority.
Plan Assets Regulation: 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA.
Pledge Agreement: the Pledge Agreement to be executed and delivered by Pledgor to Lender, substantially in the form of Exhibit G, as the same may be amended, restated, amended and restated, replaced, supplemented or otherwise modified from time to time.
Pledged Capital Stock: means any Capital Stock in which a Lien or security interest has been granted or intended to be granted to Lender, for itself and on behalf of the Secured Parties pursuant to the Loan Documents.
Pledgor: Aquasition Energy LLC, a Delaware limited liability company.
Plugging and Abandonment Obligations: all decommissioning, dismantlement and removal activities and obligations with respect to the Properties as are required by laws, leases, contracts or easements associated with the Properties, the Transaction Documents or any Governmental Authority and further including all well plugging, replugging and abandonment, dismantlement and removal of facilities, pipelines and flowlines and all other assets of any kind related to or associated with operations or activities conducted on the Properties.
17
Prepayment Date: with respect to any prepayment pursuant to Sections 2.6 or 2.7, the date of such prepayment.
Pro Forma Balance Sheet: as defined in Section 3.1(a).
Production Handling Agreement: that certain Production Handling Agreement between Borrower, Services Provider and Co-Borrower dated as of the date hereof.
Projected Oil and Gas Production: the projected production of Hydrocarbons (measured by volume unit or Btu equivalent, not sales price) from Oil and Gas Properties and interests owned by the Loan Parties which have attributable to them Proved Developed Producing Reserves, as such production is projected in the most recent Reserve Report delivered pursuant to this Agreement, after deducting projected production from any Oil and Gas Properties or Hydrocarbon Interests sold or under contract for sale that had been included in such report and after adding projected production from any Oil and Gas Properties or Hydrocarbon Interests that had not been reflected in such report but that are reflected in a separate or supplemental report meeting the requirements of Section 5.2(c) and otherwise are satisfactory to Lender.
Property: any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. Unless otherwise qualified, all references to Property in this Agreement shall refer to a Property or Properties of the Loan Parties or Co-Borrower.
Proved Developed Producing Reserves: those Oil and Gas Properties of the Loan Parties designated as proved developed producing (in accordance with the Definitions for Oil and Gas Reserves approved by the Board of Directors of the Society of Petroleum Engineers, Inc. from time to time) in the Reserve Report most recently delivered to Lender pursuant to this Agreement; provided that, in any event, “Proved Developed Producing Reserves” shall include wells which at the time of the estimate in such Reserve Report are connected and capable for delivery of Hydrocarbons to the Gathering and Processing System but are temporarily shut-in for scheduled maintenance or other remedial operations for a period not to exceed 90 consecutive days.
Proved Reserves: those Oil and Gas Properties of the Loan Parties designated as proved (in accordance with the Definitions for Oil and Gas Reserves approved by the Board of Directors of the Society of Petroleum Engineers, Inc. from time to time) in the Reserve Report most recently delivered to Lender pursuant to this Agreement.
Purchase Price Refund: any amount received by any Loan Party after the Closing Date as a result of a purchase price adjustment or similar event in connection with any acquisition of Property by such Loan Party.
Purchasers: each of the Persons that at any time purchases the Hydrocarbons of a Loan Party produced and saved from or attributable to such Loan Party’s Oil and Gas Properties.
Qualified Counterparty: any Person that (a) is Lender or an Affiliate of Lender; (b) is a Person engaged in the business of entering into Hedging Agreements for commodity, interest rate or currency risk that has (or the credit support provider of such Person has), at the time Borrower enters into a Hedging Agreement with such Person, a long term senior unsecured debt credit rating
18
of BBB+ or better from S&P or Baa1 or better from Moody’s or a corporate credit rating of AA- or better from S&P or corporate family rating of Aa- or better from Moody’s; or (c) is a Person with a credit quality reasonably acceptable to Lender.
Qualified Hedging Agreement: any Hedging Agreement entered into by Borrower and any Secured Qualified Counterparty.
Quarterly Required Payment Date: (a) commencing on September 30, 2021 and thereafter, each December 31, March 31, June 30 and September 30 and (b) the Maturity Date.
Real Property: the surface, subsurface and mineral rights and interests owned, leased or otherwise held by any Loan Party or its Subsidiaries.
Realized Monthly Net Production: with respect to any particular month, the production of natural gas, oil, natural gas liquids and processed sulfur of Borrower by category of production as set forth in the Monthly Operating Report delivered pursuant to Section 5.2(a)(ii).
Requirement of Law: as to any Person, the Constituent Documents of such Person, and any law, ordinance, policy, manual provision, guidance, principle of common law, statute, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its assets or to which such Person or any of its assets is subject including the Securities Act, the Exchange Act, Regulations T, U and X of the Federal Reserve Board, ERISA, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act, Americans with Disabilities Act of 1990, the Social Security Act, any Environmental Law, and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit, Environmental Permit or environmental, labor or employment, occupational safety or health law, rule or regulation.
Reserve Report: a report prepared by the Petroleum Engineers or petroleum engineers who are employees of Borrower or Services Provider, regarding the Proved Developed Producing Reserves attributable to the Oil and Gas Properties of the Loan Parties, substantially consistent in both format and content with the Reserve Report delivered pursuant to Section 4.1(e), and otherwise in compliance with Sections 5.2(c) and 5.2(d), as applicable. Each Reserve Report shall set forth volumes, projections of the future rate of production, Hydrocarbon prices (which shall be based upon the Reserve Report Price Deck), proceeds of production, operating expenses and Capital Expenditures and Designated Assets Present Value. If any Reserve Report (other than the Reserve Report delivered pursuant to Section 4.1(e)) identifies asset retirement obligations, such Reserve Report shall additionally provide estimates of the timing and costs associated with the retirement of the Property giving rise to such asset retirement obligation in accordance with current Governmental Authority regulations.
Reserve Report Price Deck: as at any date of measurement, (a) for crude oil and condensate, the applicable NYMEX/CS Contract Price and (b) for natural gas, the applicable NYMEX/NG Contract Price.
Reserve Value: as of any date of determination, the Designated Assets Present Value evaluated in the most recently delivered Reserve Report pursuant to Section 5.2(c) or Section 5.2(d) (provided, that for purposes of this definition, projected net Cash flows from the Oil and
19
Gas Properties shall exclude estimated production for the periods evaluated in such Reserve Report prior to the last day of the most recently completed calendar month prior to such evaluation) adjusted at the date of determination for the then current Reserve Report Price Deck.
Responsible Officer: as to any Loan Party or the Co-Borrower, the chief executive officer, president or chief financial officer of such Person (or, if such Person has no officers, any Authorized Person of such Person), but in any event, with respect to financial matters, the chief financial officer of such Person (or, if such Person has no officers, such other Authorized Person who has responsibility for reviewing, and is familiar with, the financial condition of such Person). Unless otherwise qualified, all references to a “Responsible Officer” shall refer to a Responsible Officer of Borrower or Co-Borrower, as applicable.
Restricted Payments: as defined in Section 6.5.
Retiree Medical Plan: any welfare plan (as defined in Section 3(1) of ERISA), which provides retiree medical or death benefits to any retired or terminated employees, other than as required by Section 4980B of the Code.
Royalty Account: account number 9872567129 located at the Depositary Bank.
S&P: Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or its successor.
Sale and Leaseback Transaction: any sale or other transfer of Property by any Person with the intent of such Person or an Affiliate thereof to lease such Property as a lessee.
Sanctioned Country: at any time, a country, region or territory which is itself the subject or target of any Sanctions.
Sanctioned Person: at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, or by the United Nations Security Council, the European Union, any European Union member state, Her Majesty’s Treasury of the United Kingdom, or other relevant Sanctions authority, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).
Sanctions: all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Union member state, Her Majesty’s Treasury of the United Kingdom, or other relevant sanctions authority.
Scheduled Debt Service Payment Amount: as of any Quarterly Required Payment Date, the amount of principal and interest on the Loan set forth on Schedule 1.1(b) opposite such date (as such Schedule 1.1(b) may be amended upon a prepayment of the Loan pursuant to Section 2.6
20
or Section 2.7, as determined by Lender in its reasonable discretion following consultation with Borrower and Co-Borrower).
SEC: the Securities and Exchange Commission (or successor thereto or an analogous Governmental Authority).
Secured Parties: collectively, Lender and any Secured Qualified Counterparty.
Secured Qualified Counterparty: with respect to any Qualified Hedging Agreement, any Qualified Counterparty party thereto that (a) at the time such Qualified Hedging Agreement was entered into was Lender or an Affiliate of Lender or (b) is a party to an enforceable intercreditor agreement with Lender, substantially in the form agreed to by Lender, Borrower and any existing Secured Qualified Counterparty.
Securities Act: the Securities Act of 1933, as amended.
Security Agreement: the Security Agreement to be executed and delivered by Co-Borrower, Borrower and each of their Subsidiaries and by Lender, substantially in the form of Exhibit D, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.
Security Documents: the collective reference to the Security Agreement, the Pledge Agreement, the Mortgages, the Depositary Agreement, any Control Agreements and all other security documents hereafter delivered to Lender granting a Lien on any Property of any Person to secure any of the Obligations.
Security Termination: the date upon which Payment in Full has occurred and the expiration or termination of all Qualified Hedging Agreements and payment in full of all obligations owing by any Loan Party thereunder (other than Qualified Hedging Agreements as to which arrangements satisfactory to the applicable Secured Qualified Counterparty shall have been made).
Services Fee: as defined in the Management Services Agreement.
Services Provider: W&T Offshore, Inc., a Texas corporation.
Solvency Certificate: a solvency certificate and analysis by the chief financial officer of Pledgor substantially in the form of Exhibit F.
Solvent: with respect to any Person, as of any date of determination, (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, (d) such Person will be able to pay its debts as they mature and (e) such Person is not insolvent within the meaning of
21
any applicable Requirement of Law. For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.
Subsidiary: as to any Person, a corporation, partnership, limited liability company or other entity of which shares of Capital Stock having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers (or Persons performing similar functions) of such corporation, partnership, limited liability company or other entity are at the time owned, or the management of which is otherwise controlled, in each case, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to any direct or indirect Subsidiary or Subsidiaries of Borrower or Co-Borrower, as applicable.
Swap: a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
Swap Obligation: with respect to any Loan Party, any obligation to pay or perform under any agreement, contract or transaction that constitutes a Swap.
Taxes: all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), value added taxes, or any other goods and services, use or sales taxes, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Threshold Amount: an amount equal to $3,000,000.
Transaction Documents: collectively, (i) the Assignment Agreements, (ii) the Management Services Agreement, (iii) the Production Handling Agreement, (iv) the Transition Services Agreement and (v) all other material agreements, assignments, conveyances, and instruments of any kind delivered in connection therewith regarding the Designated Assets described on Schedule 1.1(d) hereto.
Transition Services Agreement: that certain Transition Services Agreement between Services Provider and Borrower dated as of the date hereof.
UCC: the Uniform Commercial Code, as in effect from time to time in the State of Texas or other applicable jurisdiction.
Withholding Agent: Borrower.
22
23
24
25
26
27
28
and the result of any of the foregoing shall be to increase the cost to Lender of making, continuing or maintaining the Loan or of maintaining its obligation to make the Loan or to reduce the amount of any sum received or receivable by Lender hereunder, whether of principal, interest or otherwise, then, upon the request of Lender, Borrower and Co-Borrower will pay to Lender such additional amount or amounts as will compensate Lender for such additional costs incurred or reduction suffered.
29
30
31
32
33
To induce Lender to enter into this Agreement and to make the Loan, (i) Borrower hereby represents and warrants to Lender that to Borrower’s Knowledge on the date hereof and (ii) solely with respect to Sections 3.1(a), 3.3(a), 3.4 through 3.8, 3.10, 3.19, 3.20, 3.21, 3.29 through 3.33, Co-Borrower hereby represents and warrants to Lender that to Co- Borrower’s Knowledge on the date hereof:
34
35
Section 3.23. Each Loan Document has been duly executed and delivered on behalf of Co-Borrower and each Loan Party that is a party thereto. This Agreement constitutes and each other Loan Document, upon execution will constitute, a legally valid and binding obligation of Co-Borrower and each Loan Party that is a party thereto, enforceable against Co-Borrower and each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
36
As of the Closing Date, no party under the Transaction Documents is in default of any of its material obligations to Co-Borrower or Borrower under any Transaction Document or in breach of any of its representations and warranties in any material respect thereunder.
37
38
39
40
41
42
production in the ordinary course of business, and (iv) at the time furnished, no Reserve Report omitted any statement or information necessary to cause the same not to be misleading to Lender in any material respect.
43
44
45
46
47
Until Payment in Full, (i) Borrower covenants and agrees with Lender that Borrower shall, and shall cause the other Loan Parties to and (ii) solely with respect to Sections 5.1, 5.2(a), 5.2(g), 5.2(i), 5.3(a)(i), 5.3(b), 5.4 through 5.6, 5.8, 5.9¸ 5.10, 5.11(a), 5.11(d), 5.11(f), 5.11(g), 5.12, 5.17, 5.18, 5.19 and 5.21, Co-Borrower covenants and agrees with Lender that Co-Borrower shall:
48
At the Borrower and Co-Borrower’s election, all such financial statements required under this Section 5.1 may be reported on a consolidated basis at Pledgor. All such financial statements delivered pursuant to this Section 5.1 shall be complete and correct in all material respects and prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods where applicable (except as approved by the Independent Accountants, and disclosed therein, and quarterly financial statements shall be subject to normal year-end audit adjustments and need not be accompanied by footnotes).
49
50
Each delivery of a Reserve Report by Borrower to Lender pursuant to this Agreement shall constitute a representation and warranty by Borrower to Lender (A) with respect to the matters referenced in Section 3.9(c) and (B) that the Loan Parties own the Oil and Gas Properties specified therein free and clear of any Liens (except Permitted Liens).
Documents required to be delivered pursuant to Section 5.1 or Section 5.2 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower notifies Lender such documents (a) have been posted, or on which Borrower provides a link thereto on Borrower’s (or any Parent Company thereof) website on the Internet at the website address listed in Section 9.2 hereto (or as such address may be updated from time to time in accordance with Section 9.2); or (b) are posted on Borrower’s (or any Parent’s) behalf on IntraLinks/IntraAgency or another relevant website, if any, to which Lender has access (whether a commercial or third-party website).
51
52
53
54
55
Each notice pursuant to this Section 5.11 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action Co-Borrower or any Loan Party proposes to take with respect thereto.
56
57
58
59
Until Payment in Full, (i) Borrower covenants and agrees with Lender that Borrower shall not, and shall not permit any of the other Loan Parties to, directly or indirectly, without the prior written consent of Lender and (ii) solely with respect to Sections 6.1, 6.2, 6.3, 6.5 through 6.12, 6.15, 6.16, 6.18, 6.20 and 6.21, Co-Borrower covenants and agrees with Lender that Co-Borrower shall not without the prior written consent of Lender:
60
61
62
63
64
65
66
the Transaction Documents), with any Affiliate (other than Co-Borrower or a Loan Party) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of Co-Borrower or the Loan Party that is party to such transaction, and (c) upon fair and reasonable terms no less favorable to Co-Borrower or such Loan Party than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.
67
68
69
70
71
72
then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (j) of this Section 7.1 with respect to Co-Borrower or Borrower, automatically the Commitment shall immediately terminate and the Loan hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken, at the same or different times: (i) Lender may, at its option, by notice to Borrower declare the Commitment to be terminated forthwith, whereupon the Commitment shall immediately terminate; and (ii) Lender may, at its option, by notice to Co-Borrower and Borrower, declare the Loan then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loan so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of Co-Borrower and Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Co-Borrower and Borrower.
73
Any such waiver and any such amendment, supplement or modification shall be binding upon the Loan Parties and Co-Borrower, Lender and all future holders of the Loan, but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Any such waiver, amendment, supplement or modification shall be effected by a written instrument signed by the parties required to sign pursuant to the foregoing provisions of this
74
Section 9.1; provided, however, that delivery of an executed signature page of any such instrument by facsimile transmission or in portable document format (.pdf) shall be effective as delivery of a manually executed counterpart thereof.
Co-Borrower or Borrower: |
Aquasition LLC and |
Aquasition II LLC
c/o W&T Offshore, Inc.
5718 Westheimer Road, Suite 700
Houston, TX 77057
Attention: Shahid Ghauri
Email: [Redacted]
www.wtoffshore.com
with a copy to (which copy
shall not constitute notice):Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
Attention: David Miller
Pamela Kellet
Email: [Redacted]
[Redacted]
Lender: Munich Re Reserve Risk Financing, Inc.
c/o Munich Re Trading LLC
1790 Hughes Landing Blvd., Suite 275
The Woodlands, Texas 77380
Attention: Justin Moers
Facsimile: [Redacted]
Email: [Redacted]
with a copy to (which copy
shall not constitute notice):Munich Re Reserve Risk Financing, Inc.
c/o Munich Re Trading LLC
1790 Hughes Landing Blvd., Suite 275
|
The Woodlands, Texas 77380 |
Attention: JannaLyn Allen
Facsimile: [Redacted]
Email: [Redacted]
75
provided that any notice, request or demand to or upon Lender shall not be effective until received.
Lender, Co-Borrower or Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. Lender, Borrower and Co-Borrower each hereby agrees to accept notices hereunder (including notices pursuant to Section 2.2) by electronic mail in portable document format (.pdf).
76
77
78
whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Lender or any branch or agency thereof to or for the credit or the account of Borrower or Co-Borrower. Lender agrees to notify promptly Borrower and Co-Borrower after any such setoff and application made by Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application.
79
80
advisor to such contractual counterparty agrees to be bound by the provisions of this Section 9.15), (d) upon the request or demand of any Governmental Authority having jurisdiction over it, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed other than in breach of this Section 9.15, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about Lender’s Investment portfolio in connection with ratings issued with respect to Lender or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. Notwithstanding anything to the contrary in the foregoing sentence or any other express or implied agreement, arrangement or understanding, the parties hereto hereby agree that, from the commencement of discussions with respect to the financing provided hereunder, any party hereto (and each of its employees, representatives, or agents) is permitted to disclose to any and all Persons, without limitation of any kind, the tax structure and tax aspects of the transactions contemplated hereby, and all materials of any kind (including opinions or other tax analyses) related to such tax structure and tax aspects.
81
82
been executed and delivered by Co-Borrower, Borrower and Lender, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Change had not occurred. “Accounting Change” refers to any change in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC.
[Signature Page to Follow]
83
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
Aquasition LLC
By:/s/ Janet Yang
Name:Janet Yang
Title: |
Executive Vice President and Chief Financial Officer |
Aquasition II LLC
By:/s/ Janet Yang
Name:Janet Yang
Title: |
Executive Vice President and Chief Financial Officer |
Signature Page to Credit Agreement
MUNICH RE RESERVE RISK FINANCING, INC.
By:/s/ George Carrick
Name:George Carrick
Title: |
President and CEO |
By:/s/ Justin Moers
Name:Justin Moers
Title: |
Vice President |
Signature Page to Credit Agreement
Schedule 1.1(b)
Scheduled Debt Service Payment Amount
Payment Num |
Payment Date |
Beg Loan Balance |
Interest Payment |
Principal Repayment |
Total Debt Service |
End. Period Loan Balance |
1 |
07/01/21 |
215,000,000 |
1,755,833 |
- |
1,755,833 |
215,000,000 |
2 |
10/01/21 |
215,000,000 |
3,762,500 |
11,777,500 |
15,540,000 |
203,222,500 |
3 |
01/01/22 |
203,222,500 |
3,556,394 |
12,363,606 |
15,920,000 |
190,858,894 |
4 |
04/01/22 |
190,858,894 |
3,340,031 |
12,629,969 |
15,970,000 |
178,228,924 |
5 |
07/01/22 |
178,228,924 |
3,119,006 |
12,310,994 |
15,430,000 |
165,917,931 |
6 |
10/01/22 |
165,917,931 |
2,903,564 |
8,896,436 |
11,800,000 |
157,021,494 |
7 |
01/01/23 |
157,021,494 |
2,747,876 |
9,122,124 |
11,870,000 |
147,899,371 |
8 |
04/01/23 |
147,899,371 |
2,588,239 |
9,551,761 |
12,140,000 |
138,347,609 |
9 |
07/01/23 |
138,347,609 |
2,421,083 |
9,628,917 |
12,050,000 |
128,718,693 |
10 |
10/01/23 |
128,718,693 |
2,252,577 |
7,147,423 |
9,400,000 |
121,571,270 |
11 |
01/01/24 |
121,571,270 |
2,127,497 |
7,412,503 |
9,540,000 |
114,158,767 |
12 |
04/01/24 |
114,158,767 |
1,997,778 |
8,132,222 |
10,130,000 |
106,026,545 |
13 |
07/01/24 |
106,026,545 |
1,855,465 |
8,804,535 |
10,660,000 |
97,222,010 |
14 |
10/01/24 |
97,222,010 |
1,701,385 |
6,428,615 |
8,130,000 |
90,793,395 |
15 |
01/01/25 |
90,793,395 |
1,588,884 |
6,741,116 |
8,330,000 |
84,052,280 |
16 |
04/01/25 |
84,052,280 |
1,470,915 |
7,419,085 |
8,890,000 |
76,633,194 |
17 |
07/01/25 |
76,633,194 |
1,341,081 |
7,908,919 |
9,250,000 |
68,724,275 |
18 |
10/01/25 |
68,724,275 |
1,202,675 |
5,997,325 |
7,200,000 |
62,726,950 |
19 |
01/01/26 |
62,726,950 |
1,097,722 |
6,262,278 |
7,360,000 |
56,464,672 |
20 |
04/01/26 |
56,464,672 |
988,132 |
6,871,868 |
7,860,000 |
49,592,804 |
21 |
07/01/26 |
49,592,804 |
867,874 |
7,332,126 |
8,200,000 |
42,260,678 |
22 |
10/01/26 |
42,260,678 |
739,562 |
5,530,438 |
6,270,000 |
36,730,239 |
23 |
01/01/27 |
36,730,239 |
642,779 |
5,707,221 |
6,350,000 |
31,023,019 |
24 |
04/01/27 |
31,023,019 |
542,903 |
6,227,097 |
6,770,000 |
24,795,921 |
25 |
07/01/27 |
24,795,921 |
433,929 |
6,596,071 |
7,030,000 |
18,199,850 |
26 |
10/01/27 |
18,199,850 |
318,497 |
4,891,503 |
5,210,000 |
13,308,347 |
27 |
01/01/28 |
13,308,347 |
232,896 |
5,137,104 |
5,370,000 |
8,171,244 |
28 |
04/01/28 |
8,171,244 |
142,997 |
5,717,003 |
5,860,000 |
2,454,240 |
29 |
05/19/28 |
2,454,240 |
22,906 |
2,454,240 |
2,497,190 |
- |
EXHIBIT C
TO
CREDIT AGREEMENT
FORM OF DEPOSITARY AGREEMENT
(Please see attached.)
This Depositary Agreement (this “Agreement”) is entered into as of May 19, 2021, by and among Aquasition LLC, a Delaware limited liability company (“Borrower”), Munich Re Reserve Risk Financing, Inc., a Delaware corporation (“Lender”), and UMB Bank, N.A., in its capacity as agent, a national banking association (the “Bank”).
RECITALS
WHEREAS, Borrower has requested that Lender make a Loan to Borrower under that certain Credit Agreement dated as of the date hereof, among Borrower, as borrower, Aquasition II LLC, a Delaware limited liability company, as co-borrower, and Lender (as amended, restated, amended and restated and otherwise modified from time to time, the “Credit Agreement”).
WHEREAS, Borrower is obligated to cause all Business Proceeds (as defined in the Credit Agreement, the “Business Proceeds”) to be deposited into the Operating Account (as defined in the Credit Agreement, the “Operating Account”) pursuant to Section 5.18 of the Credit Agreement.
WHEREAS, until Security Termination, (i) all Business Proceeds are required to be applied as set forth in Section 2.13 of the Credit Agreement, including distributions from the Operating Account into the Control Account (as defined below) (such distributions, the “Control Account Distributions”) and (ii) all amounts on deposit in the Control Account are required to be applied as set forth in Section 2.14 of the Credit Agreement.
WHEREAS, it is a condition precedent to Lender’s obligation to make the Loan under the Credit Agreement that Borrower and the Bank shall have executed and delivered this Agreement to Lender.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
CONTROL ACCOUNT
Signature Page to Depositary Agreement (Aquasition LLC)
2
TRANSFERS FROM CONTROL ACCOUNT; BANK OBLIGATIONS
3
4
SUBORDINATION
5
MISCELLANEOUS
6
Lender Notice Information:
Attention: Justin Moers
Address: Munich Re Reserve Risk Financing, Inc.
c/o Munich Re Trading LLC
1790 Hughes Landing Blvd., Suite 275
The Woodlands, Texas 77380
Telephone: [Redacted]
E-mail: [Redacted]
Borrower Notice Information:
W&T Offshore, Inc.
5718 Westheimer Road, Suite 700
Houston, TX 77057
Attention: Shahid Ghauri
Email: [Redacted]
With a copy to (which copy shall not constitute notice):
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
Attention: David Miller
Pamela Kellet
Email: [Redacted]
[Redacted]
Bank Notice Information:
Attention: Michele Voon
Address:UMB Bank, N.A.
100 William Street, Suite 1850
New York, NY 10038 Telephone: [Redacted]
E-mail: [Redacted]
7
8
DEFINITIONS
9
“Agreement” has the meaning specified in the preamble hereto.
“Bank” has the meaning specified in the preamble hereto.
“Bank Parties” has the meaning specified in Section 2.06.
“Borrower” has the meaning specified in the preamble hereto.
“Business Day” has the meaning specified in Section 2.02.
“Business Proceeds” has the meaning specified in the recitals hereto.
“Control Account” has the meaning specified in Section 1.01(a).
“Control Account Distributions” has the meaning specified in the recitals hereto.
“Credit Agreement” has the meaning specified in the recitals hereto.
“Damages” has the meaning specified in the Section 2.05.
“Deposit Agreements” has the meaning specified in Section 1.01(g).
“Disposition Instructions” has the meaning specified in Section 2.01(a).
“Exclusive Control Effective Time” has the meaning specified in Section 2.02.
“Fee Letter” has the meaning specified in Section 2.04.
“Fees” has the meaning specified in Section 3.01.
“Lender” has the meaning specified in the preamble hereto.
“Notice of Exclusive Control” has the meaning specified in Section 2.02.
“Operating Account” has the meaning specified in recitals hereto.
“Overdrafts” has the meaning specified in Section 3.01.
“Returned Items” has the meaning specified in Section 3.01.
10
[Remainder of page intentionally left blank]
11
In witness whereof, each of the undersigned has caused this Agreement to be duly executed as of the date first above written.
Aquasition LLC,
as Borrower
By: __________________________
Name:
Title:
Signature Page to Depositary Agreement (Aquasition LLC)
Munich Re Reserve Risk Financing, Inc., as Lender
By:
Name:
Title:
MUNICH RE RESERVE RISK FINANCING, INC.,
a Delaware corporation,
as Secured Party
By:
Name:
Title:
Signature Page to Depositary Agreement (Aquasition LLC)
UMB BANK, N.A.,
as Bank
By:___________________________
Name:
Title:
Signature Page to Depositary Agreement (Aquasition LLC)
EXHIBIT A
FORM OF DISPOSITION INSTRUCTIONS
Date: __________________, 20____
UMB Bank, N.A.
100 William Street, Suite 1850
New York, NY 10038
Telephone: [Redacted]
Email: [Redacted]
Attention: Michele Voon
with a copy to:
Munich Re Reserve Risk Financing, Inc.
c/o Munich Re Trading LLC
1790 Hughes Landing Blvd., Suite 275
The Woodlands, Texas 77380
Attention: Justin Moers
Telephone: [Redacted]
E-mail: [Redacted]
Re: Disposition Instructions
Ladies and Gentlemen:
These Disposition Instructions are delivered pursuant to that certain Depositary Agreement, dated as of May 19, 2021 (as amended, amended and restated, supplemented, or otherwise modified and in effect from time to time, the “Depositary Agreement”), among Aquasition LLC, a Delaware limited liability company (“Borrower”), Munich Re Reserve Risk Financing, Inc., a Delaware corporation (“Lender”), and UMB Bank, N.A., in its capacity as agent, a national banking association (the “Bank”). Unless otherwise defined herein or unless the context otherwise requires, terms used in these Disposition Instructions have the meanings provided in the Depositary Agreement.
The undersigned, in [his/her] capacity as an officer of Borrower is an authorized signatory of Borrower and is delivering these Disposition Instructions pursuant to Section 2.01(a) of the Depository Agreement.
[In these Disposition Instructions, the Bank is hereby directed to withdraw funds from the Control Account and apply such funds on [ ], 20[ ] as provided herein:]
Exhibit A to Depositary Agreement (Aquasition LLC)
□ CONTROL ACCOUNT
Borrower hereby directs the Bank to withdraw from the Control Account the following amounts and apply such amounts as follows:
Date of Withdrawal/Transfer: |
Amount to be Withdrawn/Transferred: |
Account/Person to be Transferred to: |
Purpose: |
|
|
|
|
|
|
|
|
Exhibit A to Depositary Agreement (Aquasition LLC)
In witness whereof, these Disposition Instructions have been duly executed and delivered by a duly authorized representative of Borrower as of the date first above written and a copy has been sent to Lender.
Aquasition LLC,
as Borrower
By:___________________________
Name:
Title:
Exhibit A to Depositary Agreement (Aquasition LLC)
EXHIBIT B
FORM OF NOTICE OF EXCLUSIVE CONTROL
[Date]
UMB Bank, N.A.
100 William Street, Suite 1850
New York, NY 10038
Telephone: [Redacted]
Email: [Redacted]
Attention: Michele Voon
cc: ________________
Re: Notice of Exclusive Control under the Depositary Agreement, dated as of May 19, 2021
Ladies and Gentlemen:
Reference is made to that certain Depositary Agreement, dated as of May 19, 2021 (as amended, amended and restated, supplemented, or otherwise modified and in effect from time to time, the “Depositary Agreement”), among Aquasition LLC, a Delaware limited liability company (“Borrower”), Munich Re Reserve Risk Financing, Inc., a Delaware corporation (“Lender”), and UMB Bank, N.A., in its capacity as agent, a national banking association (the “Bank”). Capitalized terms used but not defined herein have the respective meanings set forth in the Depositary Agreement.
Pursuant to Section 2.02 of the Depositary Agreement, the undersigned hereby gives you notice of our exclusive control over the Control Account. You are hereby instructed not to accept any directions or instructions with respect to the Control Account from any Person other than the undersigned, unless this notice is revoked in writing by the undersigned. This letter is a Notice of Exclusive Control under the Depositary Agreement.
[Remainder of page intentionally left blank]
Exhibit B to Depositary Agreement (Aquasition LLC)
Very truly yours,
Munich Re Reserve Risk Financing, Inc., as Lender
By:___________________________
Name:
Title:
Exhibit B to Depositary Agreement (Aquasition LLC)
EXHIBIT C
FEE LETTER
(Omitted)
Exhibit D to Credit Agreement
EXHIBIT D
TO
CREDIT AGREEMENT
FORM OF SECURITY AGREEMENT
Exhibit D to Credit Agreement
SECURITY AGREEMENT
This SECURITY AGREEMENT (as hereafter amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) is made as of May 19, 2021 (the “Effective Date”), by AQUASITION LLC, a Delaware limited liability company (“Aquasition”) and AQUASITION II LLC, a Delaware limited liability company (“Aquasition II” and collectively with Aquasition, the “Companies” and each individually, a “Company”) in favor of MUNICH RE RESERVE RISK FINANCING, INC., a Delaware corporation, as Lender (as hereinafter defined) for the benefit of the Beneficiaries (as hereinafter defined) (together with its successors and assigns in such capacity, the “Secured Party”).
RECITALS:
THEREFORE, in order to comply with the terms and conditions of the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees as follows:
“Agreement” has the meaning specified in the preamble.
“Beneficiaries” means Lender, any Secured Qualified Counterparty and any other Person to which any Secured Obligation is owed.
“Collateral” means, with respect to any Grantor, all property described in Section 2.1 in which such Grantor has any right, title or interest, provided that Collateral shall not include any Excluded Property. References to “Collateral” herein with respect to a Grantor are intended to refer to Collateral in which such Grantor has any right, title or interest and not to Collateral in which any other Grantor has any right, title or interest.
“Company” or “Companies” has the meaning specified in the preamble.
“Credit Agreement” has the meaning specified in Recital A.
“Effective Date” has the meaning specified in the preamble.
“Equity” in any Person means any share of capital stock issued by such Person, any general or limited partnership interest, profits interest, capital interest, membership interest, or other equity interest in such Person, any option, warrant or any other right to acquire any share of capital stock or any partnership, profits, capital, membership or other equity interest in such Person, and any other voting security issued by such Person.
“Excluded Property” has the meaning specified in Section 2.1.
“Grantor Accession Agreement” means the Grantor Accession Agreement substantially in the form of Exhibit A.
“Grantor” means each Company and each other Person who becomes a party hereto pursuant to Section 7.3. References to “Grantor” herein are intended to refer to each such Person as if such Person were the only grantor pursuant to this Agreement, except:
“Intellectual Property Collateral” has the meaning specified in Exhibit B.
“Intellectual Property License” has the meaning specified in Exhibit B.
“Intellectual Property Security Agreement” means the Intellectual Property Security Agreement substantially in the form of Exhibit B.
“Lender” has the meaning specified in Recital A.
“Pledged Debt” means all Investment Property and General Intangibles constituting or pertaining to Indebtedness owing by any Person to Grantor, including all Indebtedness listed in Schedule 2.
“Pledged Equity” means all Investment Property and General Intangibles constituting or pertaining to Equity owned by Grantor in any Persons, including all Equity listed in Schedule 2.
“Secured Obligations” means:
(a)the Obligations (including all future advances that may from time to time be made under the Credit Agreement);
(b)any sums advanced or expenses or costs incurred by Secured Party (or any receiver appointed hereunder) that are made or incurred pursuant to, or permitted by, the terms hereof or of the Credit Agreement, plus interest thereon at the rate herein or therein specified from time to time
2
in effect with respect thereto under this Agreement and the Credit Agreement and accruing from the date of such advances or the incurring of such expenses or costs until reimbursed;
(c) the obligations of Aquasition II or any Loan Party to the Beneficiaries now or hereafter existing or arising, under or in connection with the Credit Agreement or any other Loan Document, whether for principal, interest, fees, costs, expenses or otherwise, and however created and whether direct or indirect, primary or secondary, fixed or absolute or contingent, joint or several (including all such amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. §362(a), and the operation of Sections 502(b) and 506(b) of the Bankruptcy Code, 11 U.S.C. §502(b) and §506(b) and any other similar provisions arising under applicable Governmental Authority); and
(d) any extensions, refinancings, modifications or renewals of all such obligations described in paragraphs (a) through (c) above, whether or not any extension agreement or renewal instrument is executed.
“Secured Party” has the meaning specified in the preamble.
“Securities Act” means the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder.
“UCC” means the Uniform Commercial Code in effect in the State of Texas from time to time; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Texas, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
3
(i) | all Equity listed in Schedule 2 that is Investment Property, together with the certificates or instruments representing such Equity, to the extent certificated (or any addendum thereto); |
(iii) | all Pledged Debt, including all Indebtedness listed in Schedule 2, |
and all rights and benefits, but no duty or obligation, of Grantor under all agreements, documents and instruments relating to the Pledged Equity, including all rights under limited liability company, operating, management, partnership and stockholder agreements.
4
Notwithstanding the foregoing, this Section 2.1 does not grant a security interest in and the “Collateral” does not include (a) motor vehicles, rolling stock or other assets subject to certificates of title, in each case, (i) to the extent the security interest in such properties cannot be perfected by the fling of a UCC-1 financing statement and (ii) that do not individually have a Fair Market Value in excess of $500,000, (b) “intent-to-use” trademarks to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity and enforceability of such intent-to-use trademark application or the trademark that is the subject thereof under applicable law, (c) any Building, (d) any Real Property of Aquasition II and (e) any of Grantor’s rights or interests in or under any property to the extent that, and only for so long as, such grant of a security interest (i) is prohibited by any Governmental Authority with jurisdiction over such property or would violate any law, rule or regulation applicable to such Grantor, including if prohibited due to not having obtained a consent of any Governmental Authority pursuant to such law, rule or regulation, (ii) is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under, any contract, license, agreement, instrument or other document, in each case, that directly evidences or gives rise to such property; provided that any of the foregoing exclusions shall not apply if (A) such prohibition has been waived or such other party has otherwise consented to the creation hereunder of a security interest in such asset or (B) such prohibition, consent or the term in such contract, license, agreement, instrument or other document or providing for such prohibition breach, default or termination or requiring such consent is ineffective or would be rendered ineffective under any requirement of a Governmental Authority, including pursuant to Section 9-406, 9-407, 9-408 or 9-409 of Article 9 of the UCC; provided further, that it is understood for avoidance of doubt that immediately upon any of the foregoing becoming or being rendered ineffective or any such prohibition, requirement for consent or term lapsing or terminating or such consent being obtained, the applicable Grantor shall be deemed to have granted a Lien in all its rights, title and interests in and to such property (and such property will not at such time be Excluded Property); provided further that “Excluded Property” shall not include any proceeds, products, substitutions or replacements of any Excluded Property (unless such proceeds, products, substitutions or replacements would otherwise be Excluded Property) (clauses (a) through (e), collectively, “Excluded Property”).
5
6
7
8
In any notice delivered pursuant to this paragraph (a), Grantor will expressly state that the notice is required by this Agreement and contains facts that may require additional filings of financing statements or other notices for the purposes of continuing perfection of the Secured Party’s first-priority security interest in the Collateral.
9
As part of the foregoing, Grantor will, whenever reasonably requested in writing by the Secured Party:
To the extent reasonably requested by the Secured Party in writing from time to time, Grantor will use commercially reasonable efforts to obtain from any account debtor or other obligor in respect of any property included in the Collateral an acknowledgment by such account debtor or obligor that such property is subject to this Agreement.
10
11
12
Grantor appoints the Secured Party as its attorney in fact to take each of the foregoing actions after the occurrence and during the continuation of any Event of Default. Such power of attorney is irrevocable and coupled with an interest and is to be used by the Secured Party solely for the benefit of the Beneficiaries.
shall (i) be Collateral and (ii) without limitation of any other rights of the Secured Party under the Loan Documents, if received by Grantor, be received in trust for the benefit of the Secured Party, be segregated from the other property or funds of Grantor on the Secured Party’s request and be forthwith delivered by Grantor to the Secured Party as Pledged Equity in the same form as so received (with any necessary indorsement).
13
Grantor will furnish any such information to the Secured Party promptly upon request. A carbon, photographic or other reproduction of this Agreement or any financing statement describing any Collateral is sufficient as a financing statement and may be filed in any jurisdiction by the Secured Party. Grantor ratifies and approves all financing statements heretofore filed by or on behalf of the Secured Party in any jurisdiction in connection with the transactions contemplated hereby.
14
Such power of attorney and proxy are coupled with an interest, are irrevocable, and are to be used by the Secured Party for the sole benefit of the Beneficiaries.
15
16
17
18
19
20
by the applicable party sent in accordance herewith. Any such notice or communication shall be deemed to have been given as provided in the Credit Agreement for notices given thereunder.
21
Without limiting the generality of the foregoing, the Secured Party and any Beneficiary may (except as otherwise provided in any Loan Document) pledge, assign or otherwise transfer any right under any Loan Document to any other Person, and such other Person shall thereupon become vested with all benefits in respect thereof granted herein or otherwise. No right or duty of Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Secured Party or a transaction permitted by the Credit Agreement.
Prior to Security Termination, no Grantor is authorized to file any financing statement or amendment or termination statement with respect to any financing statement originally filed in connection with this Agreement without the prior written consent of the Secured Party, subject to Grantors’ rights under Sections 9.509(d)(2) and 9.518 of the UCC. Notwithstanding the foregoing, Section 6.6 and this Section 7.8 shall survive the termination of this Agreement.
22
OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
[Remainder of page intentionally left blank.]
23
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the Effective Date.
|
|
|
|
|
AQUASITION LLC, a Delaware limited liability company, as a Grantor By: Name: Title: AQUASITION II LLC, a Delaware limited liability company, as a Grantor By: Name: Title: |
|
|
|
|
|
|
Signature Page to Security Agreement
MUNICH RE RESERVE RISK FINANCING, INC.,
a Delaware corporation,
as Secured Party
By:
Name:
Title:
MUNICH RE RESERVE RISK FINANCING, INC.,
a Delaware corporation,
as Secured Party
By:
Name:
Title:
Signature Page to Security Agreement
EXHIBIT A
to
SECURITY AGREEMENT
FORM OF GRANTOR ACCESSION AGREEMENT
_______ __, 20__
MUNICH RE RESERVE RISK FINANCING, INC.,
as the Secured Party for the Beneficiaries referred to
in the Security Agreement referred to below
1790 Hughes Landing Blvd., Suite 275
The Woodlands, Texas 77380
Attn: Justin Moers
Ladies and Gentlemen:
The undersigned refers to:
Terms defined in the Credit Agreement or the Security Agreement and not otherwise defined herein are used herein as defined, and rules regarding construction, references, and titles are as provided, in the Credit Agreement or the Security Agreement, as applicable.
Grant of Security. The undersigned grants to you, for the benefit of the Beneficiaries, a first-priority security interest in all of its right, title and interest in and to all of the Collateral of the undersigned, whether now owned or hereafter acquired by the undersigned, wherever located and whether now or hereafter existing or arising, including the property of the undersigned set forth on the attached supplemental schedules to the Schedules to the Security Agreement.
Security for Obligations. The grant of a first-priority security interest in the Collateral by the undersigned under this Grantor Accession Agreement and the Security Agreement secure the payment of the Secured Obligations. Without limiting the generality of the foregoing, this Grantor Accession Agreement and the Security Agreement secure the payment of all amounts that constitute part of the Secured Obligations and that would be owed by Aquasition II or any Loan Party to any Beneficiary under the Loan Documents but for the fact that such Secured Obligations are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving Aquasition II or a Loan Party.
Information Relating to the Undersigned. The undersigned is an entity of the type specified in Schedule 1 attached hereto and is organized under the laws of the jurisdiction specified in Schedule 1 attached hereto and its address for notices is specified in Schedule 1 attached hereto. Its organizational identification number and Federal Tax ID Number (EIN), if any, is set forth in Schedule 1 attached hereto. The
Exhibit A to Security Agreement
undersigned certifies, as of the date first-above written, that such Schedule 1 has been prepared by the undersigned in substantially the form of Schedule 1 to the Security Agreement and is true and complete.
Supplement to Security Agreement Schedule 2. The undersigned has attached hereto a supplemental Schedule 2 to Schedule 2 to the Security Agreement, and the undersigned certifies, as of the date first-above written, that such supplemental Schedule 2 has been prepared by the undersigned in substantially the form of Schedule 2 to the Security Agreement and is true and complete.
Representations, Warranties, Agreements and Waivers. The undersigned as of the date hereof makes each representation, warranty, agreement (including indemnification agreements), waiver and acknowledgment set forth in the Security Agreement (as supplemented by the attached supplemental schedules). The undersigned represents and warrants to the Beneficiaries that each representation and warranty made by the Companies with respect to the undersigned in any other Loan Document is true and correct as of the date hereof, except as otherwise indicated in Schedule 3 attached hereto.
Obligations Under the Security Agreement. As of the date first-above written, the undersigned hereby joins the Security Agreement as a party thereto and as a Grantor thereunder and agrees to be bound by all of the terms and provisions of the Security Agreement. As of the date first-above written, each reference in the Security Agreement to a “Grantor” shall also mean and be a reference to the undersigned.
Governing Law. THIS Grantor Accession Agreement AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER (INCLUDING ANY CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS GRANTOR ACCESSION AGREEMENT WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF TEXAS.
Counterparts; Facsimile; Electronic Transmission. This Grantor Accession Agreement may be separately executed in any number of counterparts, all of which when so executed shall be deemed to constitute one and the same agreement. This Grantor Accession Agreement may be validly delivered by facsimile or other electronic transmission (including “Portable Document Format”) of an executed counterpart of the signature page hereof.
Sincerely,
[GRANTOR]
By: _________________________
Name:
Title:
ACCEPTED AND AGREED AS OF THE DATE
FIRST-ABOVE STATED.
Exhibit A to Security Agreement
By: _________________________
Name:
Title:
Exhibit A to Security Agreement
EXHIBIT B
to
SECURITY AGREEMENT
FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this “Agreement”) is made as of __________, 20__, by the Person listed on the signature page hereof (“Grantor”), in favor of MUNICH RE RESERVE RISK FINANCING, INC., as Lender under the Credit Agreement (the “Secured Party”), for the benefit of the Beneficiaries.
RECITALS:
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor does hereby grant to the Secured Party, to secure the Secured Obligations, a continuing security interest in all of Grantor’s right, title and interest in, to and under the following (all of the following items or types of property being herein collectively referred to as the “Intellectual Property Collateral”), whether now owned or existing or hereafter acquired or arising:
Notwithstanding the foregoing, this Intellectual Property Security Agreement does not grant a security interest in any Excluded Property.
Exhibit B to Security Agreement
“Copyright” means any the following:
“Intellectual Property License” means any license or other agreement, whether now or hereafter in existence, under which is granted or authorized any right:
in each case including the agreements described under the heading “Intellectual Property Licenses” in Schedule 1.
“Patent” means any the following:
“Trademark” means any of the following:
Exhibit B to Security Agreement
provided that Trademarks shall not include any United States intent-to-use trademark application to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law.
Grantor irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney in fact with full power and authority in the name of Grantor or in its name, from time to time, in the Secured Party’s discretion, and so long as any Event of Default has occurred and is continuing, to take with respect to the Intellectual Property Collateral any and all appropriate action that Grantor might take with respect to the Intellectual Property Collateral and to execute any and all documents and instruments that may be necessary or desirable to carry out the terms of this Agreement and to accomplish the purposes hereof.
Except to the extent expressly allowed in the Security Agreement, Grantor shall not sell, license, exchange, assign or otherwise transfer or dispose of, or grant any rights with respect to, or mortgage or otherwise encumber, any of the Intellectual Property Collateral.
This security interest is granted in conjunction with the security interests granted to the Secured Party pursuant to the Security Agreement. The rights and remedies of the Secured Party with respect to the security interest in the Intellectual Property Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.
THIS Agreement AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER (INCLUDING ANY CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS AGREEMENT WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF TEXAS.
[Remainder of page intentionally left blank.]
Exhibit B to Security Agreement
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed by its officer thereunto duly authorized as of the ____ day of ____________, 20__.
[NAME OF GRANTOR]
By: _________________________
Name:
Title:
Acknowledged:
MUNICH RE RESERVE RISK FINANCING, INC., as Secured Party
By: _________________________
Name:
Title:
Exhibit B to Security Agreement
Schedule 1
to
INTELLECTUAL PROPERTY SECURITY AGREEMENT
COPYRIGHTS
PATENTS
A.U.S. Patents and Design Patents
I.D. No. |
Patent No. |
Issue Date |
Title |
|
|
|
|
B.U.S. Patent Applications
Serial No. |
Date Filed |
Title |
|
|
|
C.Foreign Patents
I.D. No. |
Patent No. |
Issue Date |
Title |
|
|
|
|
U.S. TRADEMARK REGISTRATIONS AND APPLICATIONS
A.U.S. Trademarks and Trademark Registrations
Trademark |
Registration No. |
Registration Date |
|
|
|
B.U.S. Trademark Applications
|
|
|
Trademark |
Application No. |
Filing Date |
|
|
|
INTELLECTUAL PROPERTY LICENSES
|
|
|
|
Name of
|
Parties
|
Date of
|
Subject
|
Exhibit B to Security Agreement
EXHIBIT E
TO
CREDIT AGREEMENT
FORM OF MORTGAGE
(Please see attached.)
Exhibit E to Credit Agreement
PREPARED BY AND WHEN RECORDED RETURN TO:
Haynes and Boone, LLP
1221 McKinney Street, Ste. 4000
Houston, Texas 77010
Attn: Ashleigh Gibbs
STATE OF ALABAMA
COUNTIES OF BALDWIN AND MOBILE
MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT, AS-EXTRACTED COLLATERAL FILING and fixture filing
Dated effective as of april 1, 2021
FROM
A DELAWARE LIMITED LIABILITY COMPANY,
As mortgagor
(Taxpayer ID No. [Redacted])
TO
MUNICH RE RESERVE RISK FINANCING, INC.,
FOR THE BENEFIT OF ITSELF AND THE SECURED PARTIES,
As mortgagEE
A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER OF SALE MAY ALLOW MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS INSTRUMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF FUTURE ADVANCES, and COVERS PROCEEDS OF MORTGAGED PROPERTY to the fullest extent allowed by applicable law; PROVIDED, HOWEVER, THAT THE MAXIMUM AMOUNT OF PRINCIPAL INDEBTEDNESS SECURED HEREBY SHALL NOT EXCEED $400,000,000.
THIS INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS) AND THE ACCOUNTS RELATED THERETO WHICH WILL BE FINANCED AT THE WELLHEADS OF
1
THE WELL OR WELLS LOCATED ON THE PROPERTIES DESCRIBED HEREIN. Additionally, PORTIONS OF THE MORTGAGED PROPERTY ARE GOODS WHICH ARE OR ARE TO BECOME AFFIXED TO OR FIXTURES ON THE REAL/IMMOVABLE PROPERTY DESCRIBED IN OR REFERRED TO HEREIN. THIS INSTRUMENT IS TO BE FILED OR FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF THE COUNTY RECORDERS OF THE COUNTIES LISTED ON EXHIBIT A HERETO.
MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE WHICH IS DESCRIBED IN EXHIBIT A HERETO. Mortgagor IS THE OWNER OF RECORD OF INTERESTS IN THE REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED. This instrument is, AMONG OTHER THINGS, A FINANCING STATEMENT FILED AS A FIXTURE FILING UNDER THE UNIFORM COMMERCIAL CODE COVERING ALL GOODS AS PROVIDED IN GRANTING CLAUSES WHICH ARE OR SHALL BECOME FIXTURES RELATED TO THE PREMISES DESCRIBED HEREIN AND IS TO BE RECORDED AS A FIXTURE FILING IN THE REAL PROPERTY RECORDS OF EACH STATE IN WHICH IS SITUATED ANY OF THE COLLATERAL COVERED HEREBY.
For purposes of filing this instrument as a financing statement: Mortgagor is the debtor and Mortgagee is the secured party. Mortgagor is a limited liability company organized under the laws of the State of Delaware, its organizational number is 3586981 and its mailing address is 5718 Westheimer Road, Suite 700, Houston, Texas 77057, Attn: Shahid Ghauri. Mortgagee’s mailing address is 1790 Hughes Landing Blvd., Suite 275, The Woodlands, Texas 77380, Attn: Justin Moers.
***********************************
Attention Recording Officer: This instrument contains after-acquired property provisions and covers future advances and proceeds to the fullest extent allowed by applicable law. This instrument is a mortgage of both real and personal property and is, among other things, a security agreement and financing statement under the Uniform Commercial Code of Alabama. This instrument creates a lien on rights in or relating to lands of Mortgagor which are described in Exhibit A hereto or in instruments and documents described in such Exhibit A hereto.
THIS instrument IS FILED AS AND SHALL CONSTITUTE A FIXTURE FILING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 7-9A-502(c) OF THE UNIFORM COMMERCIAL CODE OF ALABAMA.
2
MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT, AS-EXTRACTED COLLATERAL FILING AND FIXTURE FILING
This MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT, AS-EXTRACTED COLLATERAL FILING AND FIXTURE FILING (as hereafter amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Mortgage”) is executed as of the date listed on the signature page hereto, but is dated effective April 1, 2021 (the “Effective Date”), from AQUASITION LLC, a Delaware limited liability company, whose address for notice is 5718 Westheimer Road, Suite 700, Houston , Texas 77057 (“Mortgagor”), to MUNICH RE RESERVE RISK FINANCING, INC., a Delaware corporation, as Lender (as hereinafter defined) and on behalf of the Secured Parties (as hereinafter defined), whose address for notice is 1790 Hughes Landing Blvd., Suite 275, The Woodlands, Texas 77380, Attn: Justin Moers (together with its successors and assigns in such capacity, “Mortgagee”).
RECITALS:
THEREFORE, in order to comply with the terms and conditions of the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor hereby agrees with Mortgagee, for the benefit of itself and any Qualified Counterparty (collectively the “Secured Parties”) in accordance with their interests as set forth in the Credit Agreement, as follows:
3
4
5
6
Any fractions or percentages specified in the attached Exhibit A in referring to Mortgagor’s interests are solely for purposes of the warranties made by Mortgagor pursuant to Section 3.1 hereof and shall in no manner limit the quantum of interest affected by this Section 1.1 with respect to any Mortgaged Property or with respect to any unit or well identified on Exhibit A.
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, and Mortgagee’s permitted successors and substitutes in this Mortgage, and to its or their permitted successors and assigns, forever, to secure the payment and performance of the Indebtedness, and to secure the performance of the covenants, agreements, and obligations of Mortgagor herein contained, however, upon the terms, provisions and conditions herein set forth. Mortgagor hereby covenants that Mortgagor is the lawful owner and holder of the Mortgaged Property, that Mortgagor has good right to transfer, assign and mortgage the Mortgaged Property, and Mortgagor will warrant and forever defend title to the Mortgaged Property against the claims of all persons whomsoever lawfully claiming or to claim the same or any part thereof subject in each case to the conditions of Section 9.6 of the Credit Agreement.
7
Notwithstanding any provision in this Section 1.1 or in this Mortgage or any other Loan Document to the contrary, in no event is (i) any “Excluded Property” as defined in that certain Security Agreement (as the same may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”) dated as of May 19, 2021 by Mortgagor in favor of Lender for the benefit of the Beneficiaries (as defined therein)) or (ii) any Building (as defined in the applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulation) included in the definition of “Mortgaged Property” or hereby encumbered by this Mortgage; provided, that Mortgagor’s interests in all lands and Hydrocarbons situated under any such Building or Manufactured (Mobile) Home is included in the definition of “Mortgaged Property” and encumbered by this Mortgage (the “Excluded Property”). As used herein, “Flood Insurance Regulations” shall mean (i) the National Flood Insurance Act of 1968, (ii) the Flood Disaster Protection Act of 1973, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et seq.), and (iv) the Flood Insurance Reform Act of 2004 and (v) the Biggert-Waters Flood Insurance Reform Act of 2012, in each case as now or hereafter in effect or any successor statute thereto and including any regulations promulgated thereunder.
8
Section 1.8Pro Rata Benefit. This Mortgage is executed and granted for the pro rata benefit of Mortgagee and the other Secured Parties, as set forth in Section 4.15, to secure the Obligations until the Security Termination.
9
Without limiting the representations, warranties, covenants and agreements contained in the Credit
10
Agreement or any of the Loan Documents, Mortgagor hereby represents, warrants and covenants as follows:
11
12
13
14
15
16
17
18
19
20
21
22
[Signature Page Follow]
23
IN WITNESS WHEREOF, this Mortgage is executed as of the date written in the acknowledgement block below, but effective for all purposes as of the date first written above.
MORTGAGOR:
AQUASITION LLC, a Delaware limited liability company
By:
Shahid A. Ghauri
Vice President, General Counsel and Corporate Secretary
STATE OF TEXAS§
§
County OF HARRIS§
I, the undersigned Notary Public in and for said County, in said State, hereby certify that Shahid A. Ghauri, who is the Vice President, General Counsel and Corporate Secretary of AQUASITION LLC, a Delaware limited liability, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day, that being informed of the contents of the instrument, (s)he, as such Vice President, General Counsel and Corporate Secretary and with full authority, executed the same voluntarily as his free act and deed for and as the act of said limited liability company.
Given under my hand and official seal, this ___ day of May, 2021.
NOTARY PUBLIC
My Commission Expires: ___
Seal
Signature Page to Mortgage
EXHIBIT A
ATTACHED TO AND MADE A PART OF THE MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT, AS-EXTRACTED COLLATERAL FILING and fixture filing
(Omitted)
Exhibit G to Credit Agreement
EXHIBIT G
TO
CREDIT AGREEMENT
FORM OF PLEDGE AGREEMENT
(Please see attached.)
Exhibit G to Credit Agreement
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (as hereafter amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) is made as of May 19, 2021 (the “Effective Date”), by Aquasition Energy LLC, a Delaware limited liability company (the “Pledgor”) in favor of MUNICH RE RESERVE RISK FINANCING, INC., a Delaware corporation, as Lender (as hereinafter defined) for the benefit of the Beneficiaries (as hereinafter defined) (together with its successors and assigns in such capacity, the “Secured Party”).
RECITALS:
THEREFORE, in order to comply with the terms and conditions of the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees as follows:
“Agreement” has the meaning specified in the preamble.
“Aquasition Parties” has the meaning specified in Recital A.
“Beneficiaries” means Lender, any Secured Qualified Counterparty and any other Person to which any Secured Obligation is owed.
“Collateral” means, with respect to any Grantor, all property described in Section 2.1 in which such Grantor has any right, title or interest. References to “Collateral” herein with respect to a Grantor are intended to refer to Collateral in which such Grantor has any right, title or interest and not to Collateral in which any other Grantor has any right, title or interest.
“Credit Agreement” has the meaning specified in Recital A.
“Effective Date” has the meaning specified in the preamble.
“Equity” in any Person means any share of capital stock issued by such Person, any general or limited partnership interest, profits interest, capital interest, membership interest, or other equity interest in such Person, any option, warrant or any other right to acquire any share of capital stock or any partnership, profits, capital, membership or other equity interest in such Person, and any other voting security issued by such Person.
“Grantor Accession Agreement” means the Grantor Accession Agreement substantially in the form of Exhibit A.
“Grantor” means the Pledgor and each other Person who becomes a party hereto pursuant to Section 7.3. References to “Grantor” herein are intended to refer to each such Person as if such Person were the only grantor pursuant to this Agreement, except:
(b) that references to “the Grantors” are meant to refer collectively to all Persons that are Grantors; and
(c)as otherwise may be specifically set forth herein.
“Lender” has the meaning specified in Recital A.
“Pledged Equity” means all Investment Property and General Intangibles constituting or pertaining to Equity owned by Grantor in Aquasition, Aquasition II, any subsidiary of Aquasition or Aquasition II or, with respect to Pledgor, any other Person, including all Equity listed in Schedule 2.
“Pledgor” has the meaning specified in the preamble.
“Secured Obligations” means:
(a) the Obligations (including all future advances that may from time to time be made under the Credit Agreement);
(b) any sums advanced or expenses or costs incurred by Secured Party (or any receiver appointed hereunder) that are made or incurred pursuant to, or permitted by, the terms of the Credit Agreement, plus interest thereon at the rate from time to time in effect with respect thereto under the Credit Agreement and accruing from the date of such advances or the incurring of such expenses or costs until reimbursed;
(c) the obligations of Aquasition II or any Loan Party to the Beneficiaries now or hereafter existing or arising, under or in connection with the Credit Agreement or any other Loan Document, whether for principal, interest, fees, costs, expenses or otherwise, and however created and whether direct or indirect, primary or secondary, fixed or absolute or contingent, joint or several (including all such amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. §362(a), and the operation of Sections 502(b) and 506(b) of the Bankruptcy Code, 11 U.S.C. §502(b) and §506(b) and any other similar provisions arising under applicable Governmental Authority); and
2
(d) any extensions, refinancings, modifications or renewals of all such indebtedness and obligations described in paragraphs (a) through (c) above, whether or not any extension agreement or renewal instrument is executed.
“Secured Party” has the meaning specified in the preamble.
“Securities Act” means the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder.
“UCC” means the Uniform Commercial Code in effect in the State of Texas from time to time; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Texas, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
For the avoidance of doubt, no individual owner or member of the Grantor shall in his individual capacity have liability, indebtedness or other obligations owing to the Lender for the Secured Obligations, and Lender shall have no claims or recourse against the Grantor, other than solely to the assets of the Grantor as described in this Agreement or the other Loan Documents to which such Grantor is a party.
3
4
5
Termination. In addition, Grantor will, so long as this Agreement shall be in effect, perform and observe the following:
In any notice delivered pursuant to this paragraph (a), Grantor will expressly state that the notice is required by this Agreement and contains facts that may require additional filings of financing statements or other notices for the purposes of continuing perfection of the Secured Party’s first-priority security interest in the Collateral.
As part of the foregoing, Grantor will, whenever reasonably requested in writing by the Secured Party:
6
To the extent reasonably requested by the Secured Party in writing from time to time, Grantor will use commercially reasonable efforts to obtain from any account debtor or other obligor in respect of any property included in the Collateral an acknowledgment by such account debtor or obligor that such property is subject to this Agreement.
Grantor shall not take any action that would, or fail to take any action if such failure would, impair the enforceability, perfection or priority of the Secured Party’s first-priority security interest in any Collateral.
7
Grantor appoints the Secured Party as its attorney in fact to take each of the foregoing actions after the occurrence and during the continuation of any Event of Default. Such power of attorney is irrevocable and coupled with an interest and is to be used by the Secured Party solely for the benefit of the Beneficiaries.
shall (i) be Collateral and (ii) without limitation of any other rights of the Secured Party under the Loan Documents, if received by Grantor, be received in trust for the benefit of the Secured Party, be segregated from the other property or funds of Grantor on the Secured Party’s request and be forthwith delivered by Grantor to the Secured Party as Pledged Equity in the same form as so received (with any necessary indorsement).
8
Grantor will furnish any such information to the Secured Party promptly upon request. A carbon, photographic or other reproduction of this Agreement or any financing statement describing any Collateral is sufficient as a financing statement and may be filed in any jurisdiction by the Secured Party. Grantor ratifies and approves all financing statements heretofore filed by or on behalf of the Secured Party in any jurisdiction in connection with the transactions contemplated hereby.
9
10
11
12
13
specific instance and for the specific purpose for that given and to the extent specified in such writing. In addition, all such amendments and waivers shall be effective only if given with the necessary approvals required in the Credit Agreement. No such amendment shall bind any Grantor not a party thereto, but no such amendment with respect to any Grantor shall require the consent of any other Grantor.
Without limiting the generality of the foregoing, the Secured Party and any Beneficiary may (except as otherwise provided in any Loan Document), pledge, assign or otherwise transfer any right under any Loan Document to any other Person, and such other Person shall thereupon become vested with all benefits in respect thereof granted herein or otherwise. No right or duty of Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Secured Party or a transaction permitted by the Credit Agreement.
14
Prior to Security Termination, no Grantor is authorized to file any financing statement or amendment or termination statement with respect to any financing statement originally filed in connection with this Agreement without the prior written consent of the Secured Party, subject to Grantors’ rights under Sections 9.509(d)(2) and 9.518 of the UCC. Notwithstanding the foregoing, Section 6.6 and this Section 7.8 shall survive the termination of this Agreement.
[Remainder of page intentionally left blank.]
15
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the Effective Date.
|
|
|
|
|
AQUASITION ENERGY LLC, a Delaware limited liability company, as a Grantor By: Name: Title: |
Signature Page to Pledge Agreement
MUNICH RE RESERVE RISK FINANCING, INC.,
a Delaware corporation,
as Secured Party
By:
Name:
Title:
MUNICH RE RESERVE RISK FINANCING, INC.,
a Delaware corporation,
as Secured Party
By:
Name:
Title:
Signature Page to Pledge Agreement
EXHIBIT A
to
PLEDGE AGREEMENT
FORM OF GRANTOR ACCESSION AGREEMENT
_______ __, 20__
MUNICH RE RESERVE RISK FINANCING, INC.,
as the Secured Party for the Beneficiaries referred to
in the Pledge Agreement referred to below
1790 Hughes Landing Blvd., Suite 275
The Woodlands, Texas 77380
Attn: Justin Moers
Ladies and Gentlemen:
The undersigned refers to:
Terms defined in the Credit Agreement or the Pledge Agreement and not otherwise defined herein are used herein as defined, and rules regarding construction, references, and titles are as provided, in the Credit Agreement or the Pledge Agreement, as applicable.
Security for Obligations. The grant of a first-priority security interest in the Collateral by the undersigned under this Grantor Accession Agreement and the Pledge Agreement secure the payment of the Secured Obligations. Without limiting the generality of the foregoing, this Grantor Accession Agreement and the Pledge Agreement secure the payment of all amounts that constitute part of the Secured Obligations and that would be owed by Aquasition II or any Loan Party to any Beneficiary under the Loan Documents but for the fact that such Secured Obligations are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving Aquasition II or a Loan Party.
Exhibit A to Pledge Agreement
Information Relating to the Undersigned. The undersigned is an entity of the type specified in Schedule 1 attached hereto and is organized under the laws of the jurisdiction specified in Schedule 1 attached hereto and its address for notices is specified in Schedule 1 attached hereto. Its organizational identification number and Federal Tax ID Number (EIN), if any, is set forth in Schedule 1 attached hereto. The undersigned certifies, as of the date first-above written, that such Schedule 1 has been prepared by the undersigned in substantially the form of Schedule 1 to the Pledge Agreement and is true and complete.
Supplement to Pledge Agreement Schedule 2. The undersigned has attached hereto a supplemental Schedule 2 to Schedule 2 to the Pledge Agreement, and the undersigned certifies, as of the date first-above written, that such supplemental Schedule 2 has been prepared by the undersigned in substantially the form of Schedule 2 to the Pledge Agreement and is true and complete.
Representations, Warranties, Agreements and Waivers. The undersigned as of the date hereof makes each representation, warranty, agreement (including indemnification agreements), waiver and acknowledgment set forth in the Pledge Agreement (as supplemented by the attached supplemental schedules). The undersigned represents and warrants to the Beneficiaries that each representation and warranty made by the Aquasition Parties with respect to the undersigned in any other Loan Document is true and correct as of the date hereof, except as otherwise indicated in Schedule 3 attached hereto.
Obligations Under the Pledge Agreement. As of the date first-above written, the undersigned hereby joins the Pledge Agreement as a party thereto and as a Grantor thereunder and agrees to be bound by all of the terms and provisions of the Pledge Agreement. As of the date first-above written, each reference in the Pledge Agreement to a “Grantor” shall also mean and be a reference to the undersigned.
Governing Law. THIS Grantor Accession Agreement AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER (INCLUDING ANY CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS GRANTOR ACCESSION AGREEMENT WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE) SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF TEXAS.
Counterparts; Facsimile; Electronic Transmission. This Grantor Accession Agreement may be separately executed in any number of counterparts, all of which when so executed shall be deemed to constitute one and the same agreement. This Grantor Accession Agreement may be validly delivered by facsimile or other electronic transmission (including “Portable Document Format”) of an executed counterpart of the signature page hereof.
Sincerely,
[GRANTOR]
By: _________________________
Name:
Title:
ACCEPTED AND AGREED AS OF THE DATE
FIRST-ABOVE STATED.
Exhibit A to Pledge Agreement
MUNICH RE RESERVE RISK FINANCING, INC., as Secured Party
By: _________________________
Name:
Title:
Exhibit A to Pledge Agreement
EXHIBIT H
TO
CREDIT AGREEMENT
FORM OF guaranty
(Please see attached.)
Exhibit H to Credit Agreement
This GUARANTY (as hereafter amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Guaranty”) is made as of May 19, 2021 (the “Effective Date”), by each Guarantor (as hereinafter defined) that is listed on the signature pages hereof in favor of MUNICH RE RESERVE RISK FINANCING, INC., a Delaware corporation, as Lender (as hereinafter defined), for the benefit of the Beneficiaries (as hereinafter defined) (together with its successors and assigns in such capacity, the “Guaranteed Party”).
RECITALS:
THEREFORE, in order to comply with the terms and conditions of the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Guarantor agrees as follows:
“Aquasition Parties” has the meaning specified in Recital A.
“Beneficiaries” means Lender, any Secured Qualified Counterparty and any other Person to which Guaranteed Obligations are owing.
“Credit Agreement” has the meaning specified in Recital A.
“Effective Date” has the meaning specified in the preamble.
“Guaranteed Obligations” means:
(a) the Obligations (including all future advances that may from time to time be made under the Credit Agreement);
(b) any sums advanced or expenses or costs incurred by Guaranteed Party (or any receiver appointed hereunder) that are made or incurred pursuant to, or permitted by, the terms of the Credit
Agreement, plus interest thereon at the rate from time to time in effect with respect thereto under the Credit Agreement and accruing from the date of such advances or the incurring of such expenses or costs until reimbursed;
(c) the obligations of Aquasition II or any Loan Party to the Beneficiaries now or hereafter existing or arising, under or in connection with the Credit Agreement or any other Loan Document, whether for principal, interest, fees, costs, expenses or otherwise, and however created and whether direct or indirect, primary or secondary, fixed or absolute or contingent, joint or several (including all such amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. §362(a), and the operation of Sections 502(b) and 506(b) of the Bankruptcy Code, 11 U.S.C. §502(b) and §506(b) and any other similar provisions arising under applicable Governmental Authority); and
(d) any extensions, refinancings, modifications or renewals of all such indebtedness and obligations described in paragraphs (a) through (c) above, whether or not any extension agreement or renewal instrument is executed.
“Guaranteed Party” has the meaning specified in the preamble.
“Guarantor” means each Person listed as a Guarantor on the signature pages to this Guaranty and each other Person who becomes a party hereto pursuant to Section 9.3. References to “Guarantor” herein are intended to refer to each such Person as if such Person were the only guarantor pursuant to this Guaranty, except:
“Guaranty” has the meaning specified in the preamble.
“Lender” has the meaning specified in Recital A.
“Net Worth” has the meaning specified in Section 7.3.
“Post-Petition Interest” has the meaning specified in Section 7.1(b).
“Subordinated Obligations” has the meaning specified in Section 7.1.
2
in full to the Guaranteed Party for the benefit of the Beneficiary to which such Guaranteed Obligation is owed. If the Aquasition Parties or any other Guarantor shall for any reason fail to perform promptly any Guaranteed Obligation that is not for the payment of money, Guarantor will, upon written demand by the Guaranteed Party, cause such Guaranteed Obligation to be performed or, if specified by the Guaranteed Party, provide sufficient funds, in such amount and manner as the Guaranteed Party shall in good faith determine, for the prompt, full, and faithful performance of such Guaranteed Obligation by the Guaranteed Party or such other Person as the Guaranteed Party shall designate. Without limiting the generality of the foregoing, Guarantor will pay all amounts that constitute part of the Guaranteed Obligations and would be owing but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization, or similar proceeding.
3
4
5
6
7
8
9
its contribution obligations voidable under applicable law relating to fraudulent conveyances or fraudulent transfers. “Net Worth” means, at any time and for any Guarantor:
10
Without limiting the generality of the foregoing, the Guaranteed Party and any other Beneficiary may (except as otherwise provided in any Loan Document), pledge, assign, or otherwise transfer any right under any Loan Document to any other Person, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted herein or otherwise. No right or duty of Guarantor hereunder may be assigned or otherwise transferred without the prior written consent of the Guaranteed Party.
11
[Remainder of page intentionally left blank. Signature page follows.]
12
IN WITNESS WHEREOF, each Guarantor has executed and delivered this Guaranty as of the date first written above.
AQUASITION ENERGY LLC,
a Delaware limited liability company,
as a Guarantor
By:
Name:
Title:
Signature Page to Guaranty
SCHEDULE 1
to
GUARANTY
Guarantor Information
|
|
|
|
Name of Guarantor |
Type of
|
Jurisdiction of
|
Address for Notices |
Aquasition Energy LLC |
Limited liability company |
Delaware |
W&T Offshore, Inc. 5718 Westheimer Road, Suite 700 Houston, TX 77057 Attention: Shahid Ghauri Email: [Redacted] |
Schedule 1 to Guaranty
EXHIBIT A
to
GUARANTY
FORM OF GUARANTY SUPPLEMENT
_______ __, 20__
MUNICH RE RESERVE RISK FINANCING, INC.,
as the Guaranteed Party on behalf of the Beneficiaries
referred to in the Guaranty referred to below
1790 Hughes Landing Blvd., Suite 275
The Woodlands, Texas 77380
Attn: Justin Moers
Ladies and Gentlemen:
The undersigned refers to:
Terms defined in the Credit Agreement or the Guaranty and not otherwise defined herein are used herein as defined, and rules regarding construction, references, and titles are as provided, in the Credit Agreement or the Guaranty, as applicable.
Exhibit A to Guaranty
Very truly yours,
[GUARANTOR]
By: _________________________
Name:
Title:
ACCEPTED AND AGREED AS OF THE DATE
FIRST-ABOVE STATED.
MUNICH RE RESERVE RISK FINANCING, INC., as Guaranteed Party
on behalf of the Beneficiaries
By: _________________________
Name:
Title:
Exhibit A to Guaranty
Exhibit 10.4
BY AND AMONG
AQUASITION LLC AND AQUASITION II LLC,
COLLECTIVELY, AS THE SERVICES RECIPIENT
AND
W&T OFFSHORE, INC.,
AS THE SERVICES PROVIDER
DATED AS OF MAY 19, 2021
AND EFFECTIVE AS OF APRIL 1, 2021
Table of Contents
Settlement of Claims and Lawsuits10
Monthly Reports and Other Requested Information11
Notice of Services Provider Default12
Midstream Expenditure Payments13
Billings and Payments; Set-Off13
Response to Force Majeure Events15
Services Provider to Cooperate17
Governing Law; Venue; Waiver of Jury Trial20
(i)
EXHIBITS AND SCHEDULES
Exhibit A – Oil and Gas Properties (Omitted)
Exhibit B – Management Services
Exhibit C – Deferred Production Report (Omitted)
Schedule 2.3(c) – Hydrocarbon Purchase Agreements (Omitted)
(ii)
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this “Agreement”), dated as of May 19, 2021, but effective for all purposes as of April 1, 2021 (the “Effective Date”), is by and among AQUASITION LLC, a Delaware limited liability company (“A-I LLC”), AQUASITION II LLC, a Delaware limited liability company (“A-II LLC”, and together with A-I LLC, collectively, the “Services Recipient”), and W&T OFFSHORE, INC., a Texas corporation (the “Services Provider”). The Services Provider and the Services Recipient may be separately referred to herein as a “Party” and collectively as the “Parties.”
RECITALS
A. | A-I LLC owns working interests in certain oil and gas properties located in state and federal waters in Mobile Bay, Alabama, described on Exhibit A, which it acquired as of the Effective Date from the Services Provider pursuant to the Upstream Assignment (as defined herein) (such interests are collectively referred to as the “Oil and Gas Properties”). |
B. | A-II LLC owns certain midstream assets located in and near Mobile Bay, Alabama, which it acquired as of the Effective Date from the Services Provider, which midstream assets service the Oil and Gas Properties and which it acquired as of the Effective Date from the Services Provider pursuant to the Midstream Assignment (as defined herein) (such assets, the “Midstream Assets”). |
C. | The Services Provider, as Seller (in such capacity, “Seller”), and A-I LLC, as Buyer (in such capacity, “Buyer”), entered into that certain Transition Services Agreement dated as of the Effective Date (as may be amended, restated and/or otherwise supplemented, from time to time, the “TSA”) pursuant to which Seller has agreed to provide Buyer with “Transition Services” (as defined in the TSA) related to the ownership, management, development, and operation of the Oil and Gas Properties including the Management Services described below. |
D. | The Services Recipient wishes to engage the Services Provider as an independent contractor to provide, directly or indirectly, the Management Services (as defined herein) related to the ownership, management, development, and operation of the Oil and Gas Properties and the Midstream Assets, subject to and upon the terms and conditions of this Agreement. |
E. | The Services Provider wishes to provide the Management Services as an independent contractor to Services Recipient, subject to and upon the terms and conditions of this Agreement. |
NOW, THEREFORE, in consideration of the foregoing premises, the terms and provisions set forth herein, the mutual benefits to be derived from the performance hereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1
Capitalized terms used and not otherwise defined herein shall have the respective meanings given thereto in the Services Recipient Credit Facility. In addition, the following definitions shall apply wherever appearing in this Agreement:
(a) | “A-I LLC” is defined in the first paragraph of this Agreement. |
(b) | “A-II LLC” is defined in the first paragraph of this Agreement. |
(c) | “AFE” is defined in Section (e). |
(d) | “Affiliates” means as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (ii) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. The term “Affiliated” has a correlative meaning. For all purposes of this Agreement, the (i) Services Recipient shall be deemed not to be an Affiliate of the Services Provider and (ii) Services Provider shall be deemed not to be an Affiliate of the Services Recipient. |
(e) | “Agreement” is defined in the first paragraph of this Agreement. |
(f) | “Btu” means British Thermal units, a measure of heating value. |
(g) | “Business Day” means any day other than a Saturday, a Sunday, or a holiday on which commercial banks in Houston, Texas are closed. |
(h) | “Buyer” is defined in Recital C. |
(i) | “Code” means the Internal Revenue Code of 1986, as amended. |
(k) | “Damages” is defined in Section (i). |
2
(m) | “Designated Representative of the Services Recipient” means Antoine Gautreaux (Vice President, Production), until such time as the Services Recipient designates, in writing, a successor. |
(n) | “Effective Date” is defined in the first paragraph of this Agreement. |
(o) | “Force Majeure Event” is defined in Section 0. |
(p) | “Hydrocarbon Purchase Agreements” means those certain Hydrocarbon purchase and sale agreements set forth on Schedule 2.3(c), with respect to A-I LLC’s Hydrocarbon production attributable to the Oil and Gas Properties. |
(q) | “Hydrocarbon Gathering and Processing Agreements” means those certain Hydrocarbon gathering, processing and transportation agreements set forth on Schedule 2.3(c), with respect to gathering, processing and transportation agreements between A-II LLC and producers and shippers on A-II LLC’s Gathering and Processing System. |
(r) | “Hydrocarbons” means, collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. |
(t) | “Lender” means the lender under the Services Recipient Credit Facility. |
(u) | “LOE” is defined in Section 0. |
(v) | “Management Services” is defined in Exhibit B. |
3
(w) | “Midstream Assets” is defined in Recital B. |
(x) | “Midstream Assignment” means that certain Assignment and Bill of Sale (Midstream Assets) between W&T Offshore, Inc., as Assignor, and A-II, LLC, as Assignee, dated as of the date hereof. |
(y) | “Midstream Expenditures” is defined in Section 0. |
(z) | “MMBtu” means one million Btu. |
(aa) | “Oil and Gas Properties” is defined in Recital A. |
(bb) | “Party” and “Parties” is each defined in the first paragraph of this Agreement. |
(dd) | “Physical Hedge Contract” means any physical commodity purchase and sale agreement with a fixed price or index-based price between A-I LLC and a Third Party. |
(ee) | “Physically Hedged Volumes” means the volumes of gas or other Hydrocarbons that A-I LLC is required to sell and deliver under any Physical Hedge Contract, if applicable. |
4
(hh) | “Seller” is defined in Recital C. |
(ii) | “Services Fee” means the quarterly overhead amount incurred by Services Provider in connection with performing the Management Services which in no event shall exceed $500,000 annually. |
(jj) | “Services Provider” is defined in the first paragraph of this Agreement. |
(kk) | “Services Provider Default” is defined in Section 0. |
(ll) | “Services Provider Group” is defined in Section (i). |
(mm) | “Services Recipient” is defined in the first paragraph of this Agreement. |
(oo) | “Services Recipient Group” is defined in Section (i). |
(pp) | “Services Standard” is defined in Section (a). |
(rr) | “Successor Services Provider” is defined in Section (a). |
(tt) | “Third Party” means any Person other than a Party or an Affiliate of a Party. |
(uu) | “TSA” is defined in Recital C. |
5
(vv) | “Uncommitted Volumes” means all Hydrocarbons produced, saved, and sold under the Hydrocarbon Purchase Agreements that are not Physically Hedged Volumes. |
(ww) | “Upstream Assignment” means that certain Assignment and Bill of Sale (Oil and Gas Leases) between W&T Offshore, Inc. and W&T Energy VI, LLC, as Assignor, and A-I, LLC, as Assignee, dated as of the date hereof. |
(xx) | “WASP” means the weighted average sales price, on a monthly basis, received for selling the Hydrocarbons pursuant to Section (b), prior to deducting any costs and expenses as provided for herein. |
(c) | Indemnity |
6
(ii) | THE SERVICES RECIPIENT AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE SERVICES PROVIDER, ITS AFFILIATES, AND ITS AND THEIR OFFICERS, DIRECTORS, EMPLOYEES, SHAREHOLDERS, MEMBERS, MANAGERS, PARTNERS, REPRESENTATIVES, AND AGENTS (“SERVICES PROVIDER GROUP”) FROM AND AGAINST ANY AND ALL DAMAGES THAT ARISE OUT OF, OR RELATE TO THIS AGREEMENT WITH RESPECT TO (X) PERSONAL INJURY OR DEATH OF ANY MEMBER OF THE SERVICES RECIPIENT GROUP, AND (Y) PROPERTY DAMAGE OF ANY MEMBER OF THE SERVICES RECIPIENT GROUP, IN EACH CASE, EXCEPT TO THE EXTENT SUCH DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUD OF ANY MEMBER OF THE SERVICES PROVIDER GROUP. |
(iii) | Notwithstanding any other provision of this Agreement to the contrary, neither Party shall be liable to the other Party for any consequential, indirect, incidental, special, exemplary, punitive or similar damages of any kind (including lost profits and business interruption) arising out of or in connection with this Agreement (which amounts shall not include any amounts due to the Services Provider by the Services Recipient under this Agreement), except to the extent of any such damages suffered by Third Parties which are expressly covered by the indemnification obligations set forth in this Agreement. |
(iv) | In calculating any amount to be paid by an indemnifying Party by reason of the provisions of this Agreement, the amount shall be reduced by any insurance proceeds actually received from insurance policies carried pursuant to this Agreement. The indemnified Party shall use commercially reasonable efforts to mitigate any and all Damages arising out of any claim for indemnity hereunder. |
7
(f) | The Services Provider will (i) (A) maintain the validity and good standing of its corporate status and (B) with respect to (I) all wells included in the Oil and Gas Properties, or (II) the Midstream Assets, as applicable, of which Services Provider or its Affiliates is the operator of record as of the Effective Date, will remain or will cause one of its Affiliates to remain the operator of record of such wells under the rules and regulations of the State Oil and Gas Board of Alabama, the U.S. Bureau of Ocean Energy Management, the Bureau of Safety and Environmental Enforcement, and other Governmental Authorities having jurisdiction thereover, (ii) with respect to (X) all wells included in the Oil and Gas Properties, or (Y) the Midstream Assets, as applicable, of which Services Provider or its Affiliates is the operator of record as of the Effective Date, obtain, maintain, and comply in all material respects with all permits or other authorizations required to be obtained and maintained by or complied with by the operator of those Oil and Gas Properties, or such Midstream Assets, as applicable, including all bonding and escrow requirements as set out by the appropriate regulatory agencies or bonding companies and (iii) with respect to all wells included in the Oil and Gas Properties of which Services Provider or its Affiliates is not the operator of record as of the Effective Date, shall enforce its rights under any unit operating or joint operating agreements in a commercially reasonable manner. |
(a) | Independent Contractor. |
(i) | The Services Provider and shall remain at all times an independent contractor with respect to the Services Recipient. Except as expressly authorized in writing by the Services Recipient, under no circumstances shall the Services Provider be deemed to be a partner, joint-venturer, employee, agent, or representative of the Services Recipient, and nothing in this Agreement is intended to or shall be construed to create the relationship of employer-employee or any other relationship or status (including any fiduciary relationship) other than that of an independent contractor. During the Term, neither the Services Recipient nor any of its Affiliates shall provide, and the other employees of the Services Provider or its Affiliates shall not be eligible for or entitled to participate in or to |
8
(ii) | The Services Provider and the employees of the Services Provider and its Affiliates are authorized to rely upon the directions, communications and instructions of the Designated Representative of the Services Recipient without further inquiry, and neither the Services Provider, its Affiliates nor any of their respective employees shall have any liability to the Services Recipient or any Third Parties in so relying. |
(iii) | Neither the Services Provider nor any of its Affiliates shall have any right, capacity, or authority to execute any documents or agreements on behalf of the Services Recipient, or otherwise bind the Services Recipient in any manner whatsoever, except (A) to the extent contemplated herein, (B) through any applicable joint operating or unit operating agreement on the Services Recipient’s behalf in the ordinary course of business covering any Oil and Gas Property or Midstream Assets, as applicable, (C) in the ordinary course as may be required under the Production Handling Agreement or (D) as otherwise approved in writing, or otherwise authorized (in each case) by the Designated Representative of the Services Recipient. |
(b) | The Services Provider shall give the Services Recipient and its designees reasonable access during Services Provider’s normal business hours (upon reasonable advance written notice), and in a manner reasonably designed to minimize interference with the business of the Services Provider or its Affiliates if possible, to the Records and other statements, invoices, billings, and data relating to the Oil and Gas Properties and the Midstream Assets in the Services Provider’s actual possession or control. In the event this Agreement is terminated, the Services |
Provider shall provide the Services Recipient with all such Records in electronic or original format.
9
(c) |
Audits. |
(ii) |
At the conclusion of an audit, the Parties shall endeavor to settle outstanding matters expeditiously. To this end, the Services Provider will make a reasonable effort to prepare and distribute a written report to the Services Recipient as soon as reasonably practicable, and in any event, within 90 days after conclusion of such audit. The report shall include responses to all claims arising from such audit and reasonable back-up information supporting such responses. The Services Provider shall promptly (X) adjust its records and books to reflect all adjustments resulting from an audit agreed to between the Parties and (Y) issue a credit or charge to the Services Recipient, if applicable. If any dispute shall arise in connection with an audit which the Parties are unable to resolve within 30 days of good faith negotiations, then such dispute shall be resolved pursuant to Section 0. |
1.5 Insurance. The Services Provider, on behalf of the Services Recipient, shall procure, maintain and renew with respect to the Oil and Gas Properties and the Midstream Assets insurance (a) as required by applicable laws, rules, and regulations and contracts (to the extent not maintained pursuant to the relevant joint operating agreements applicable to such Oil and Gas Property), consistent with the Services Standard, expressly including any applicable governmental requirements for bonding, and (b) as required pursuant to the terms of the Services Recipient Credit Facility. With respect to any policy, the Services Provider shall maintain coverage and policy limits in accordance with the requirements under the Services Recipient Credit Facility, which shall include an endorsement naming the Services Recipient as named insured and its Lender as additional insured and loss payee as required pursuant to the Services Recipient Credit Facility.
1.6Settlement of Claims and Lawsuits. The Services Provider shall promptly notify the Services Recipient of any material claims or suits that arise out of or relate in any way to the Oil and Gas Properties, the Midstream Assets or the Management Services of which the Services
10
Provider receives written notice. The Services Provider shall, if requested in writing by the Services Recipient (and only if the Services Recipient is timely discharging its payment obligations hereunder), represent the Services Recipient and defend or oppose each such claim or suit.
1.7Monthly Reports and Other Requested Information.
(a) | In accordance with the terms of the Services Recipient Credit Facility, the Services Provider will deliver to the Services Recipient monthly a Monthly Operating Report. |
(b) | The Services Provider will also: |
(i) | provide to Services Recipient the WASP utilized in performing the calculations set forth in Section (b) in respect of the production month applicable to the sales volumes described in the Monthly Operating Report; |
(ii) | provide to Services Recipient a Deferred Production Report, substantially in the form of Exhibit C; |
(iii) | upon written request, provide to Services Recipient backup copies of invoices or other advices of payment in respect of the items set forth in the reports provided in accordance with Section 0; |
(iv) | promptly notify and deliver to Services Recipient copies of any material reports, correspondence and other documents in its possession, custody or control regarding compliance with or potential liability under environmental laws related to the Oil and Gas Properties or the Midstream Assets; |
(v) | report to the Services Recipient as soon as reasonably practicable, details of (A) fatalities, recordable injuries under the Occupational Safety and Health Act and oil spills greater than 10 barrels occurring with respect to operations related to any Oil and Gas Property or Midstream Asset, and also provide copies of any material written notices received from Governmental Authorities or Third Parties with respect to such fatalities, injuries and incidents and (B) material action taken or proposed in writing to be taken, in each case, by any Governmental Authority with respect to any Oil and Gas Property or Midstream Asset; and |
(vi) | promptly notify the Services Recipient in writing of any (A) notice of material violation or non-compliance of any applicable law or regulation received by the Services Provider from any Governmental Authority related to any Oil and Gas Property or Midstream Asset or (B) any other Third Party notice, demand, claim or suit related to any Oil and Gas Property or Midstream Asset, and for which the Services Provider receives written notice that exceeds (or is or would be reasonably expected to exceed) $3,000,000, including notices, demands, claims or suits of co-owners of the Oil and Gas Properties or the Midstream Assets (as |
11
applicable) or lessors under the oil and gas leases or oil, gas and mineral leases included in the Oil and Gas Properties or notices, demands, claims or suits by any Third Party questioning, contesting or otherwise materially adversely affecting the Services Recipient’s title to any Oil and Gas Property or Midstream Assets, and upon reasonable written request of the Services Recipient, from time to time the Services Provider shall further provide, in a timely manner, current information regarding the progress and status of any such notices, demands, claims or suits. |
1.8Notice of Services Provider Default. Promptly following becoming aware of the existence of any condition or event which constitutes a Services Provider Default or which, with notice and lapse of time, would be reasonably expected to become a Services Provider Default, the Services Provider will provide the Services Recipient with a written notice describing the nature and period of existence of such condition or event and what action the Services Provider is taking or proposes to take with respect thereto.
ARTICLE II
PAYMENTS; SALE OF HYDROCARBONS
2.1LOE Payments. The Services Provider will pay or caused to be paid directly from Services Recipient’s Operating Account all actual day-to-day lease operating expenses and direct costs for all wells included in the Oil and Gas Properties as and when due, including Land Costs (which are subject to the payment procedures in Section 0) (collectively, “LOE”) (including Capital Expenditures attributable to A-I LLC’s participating interest share that arise with respect to the following):
(a) | unanticipated maintenance and repairs of facilities and equipment required for the provision of the Management Services; |
(b) | all Decommissioning costs; |
(c) | all production, severance and ad valorem taxes and fees attributable to the Oil and Gas Properties for the relevant production month, commencing with the Effective Date month; |
(d) | Third party fees and costs of Hydrocarbon transportation, processing, treating and marketing under the Production Handling Agreement, and other such costs prior to the point of sale (including any and all charges due to Handler (as defined in the Production Handling Agreement) under the Production Handing Agreement), with respect to Hydrocarbons attributable to the Oil and Gas Properties; |
(e) | Third party fees and costs of Hydrocarbon sales (including Physically Hedged Volumes and Uncommitted Volumes); and |
(f) | the premiums and other costs incurred in connection with the insurance requirements prescribed by Section 0 or applicable insurance mandated under applicable law or contract. |
12
2.2Midstream Expenditure Payments. The Services Provider will pay or caused to be paid directly from Services Recipient’s Operating Account all actual day-to-day operating expenses and Capital Expenditures incurred with respect to the ownership and operation of the Midstream Assets as and when due (collectively, “Midstream Expenditures”) (including Capital Expenditures attributable to A-II LLC’s participating interest share that arise with respect to the following):
(a) | unanticipated maintenance and repairs of facilities and equipment required for the provision of the Management Services; |
(b) | all Decommissioning costs; |
(c) | all ad valorem taxes and fees attributable to the Midstream Assets for the relevant month, commencing with the Effective Date month; |
(d) | Third party fees and costs incurred with respect to Hydrocarbon transportation, processing, treating and marketing, and other such costs prior to the point of sale under the Production Handing Agreement), with respect to Hydrocarbons processed and handled on the Midstream Assets, and any other operating expenses of A-II LLC in connection with the operation of the Midstream Assets, to the extent not covered by the charges due by Producer (as defined in the Production Handling Agreement) to Handler (as defined in the Production Handling Agreement) pursuant to the Production Handling Agreement; and |
(e) | the premiums and other costs incurred in connection with the insurance requirements prescribed by Section 0 or applicable insurance mandated under applicable law or contract. |
2.3Billings and Payments; Set-Off.
(c) | On a daily basis, the Services Provider shall cause (i) to be Sold A-I LLC’s Hydrocarbon production and (ii) to be transported and processed all Hydrocarbons delivered to A-II LLC’s Midstream Assets and redelivered at the delivery point(s) in compliance with the Hydrocarbon Gathering and Processing Agreements between A-II LLC and the applicable producers or shippers. Services Provider shall direct (1) the purchasers of A-I LLC’s Hydrocarbons and (2) the producers and shippers shipping Hydrocarbons on A-II LLC’s Midstream Assets (in each case) to |
13
pay all amounts due under the respective Hydrocarbon Purchase Agreements and Hydrocarbon Gathering and Processing Agreements directly to the Services Recipient’s Operating Account. |
(d) | In accordance with the terms of the Production Handling Agreement, the Services Provider shall cause the collection of all fees and charges due thereunder by A-I LLC to A-II LLC with such fees and expenses to be paid directly to the Services Recipient’s Operating Account. On a daily basis, the Services Provider shall direct any other Third Parties paying amounts due with respect to the Hydrocarbon Gathering and Processing Agreements directly to the Services Recipient’s Operating Account. |
2.4Land Costs. With respect to all actual Land Costs that are then due and owing, at the times when such Land Costs are then due and owing, Services Provider shall (a) debit from Services Recipient’s Operating Account into Services Recipient’s Royalty Account such amounts as may be required to pay such Land Costs and (b) then pay or cause to be paid directly from Services Recipient’s Royalty Account such Land Costs.
14
3.1Suspension of Performance. If a Party is rendered unable by reason of a Force Majeure Event to perform any of its obligations under this Agreement, other than the Parties’ payment and indemnification obligations hereunder (which shall not be suspended by any Force Majeure Event), then such Party’s obligations shall be suspended to the extent affected by such Force Majeure Event.
3.2Force Majeure Events. “Force Majeure Event” means any cause or event not reasonably within the control of the Party whose performance is sought to be excused thereby, including the following causes and events (to the extent such causes and events are not reasonably within the control of the Party claiming excuse): (a) acts of God, landslides, lightning, earthquakes; fires; storms or storm warnings, such as hurricanes, which result in evacuation of the affected area; floods; loop currents; washouts; explosions, sabotage or breakage, accident, or necessity of repairs to machinery or equipment or lines of pipe, plants or equipment resulting directly from any of the foregoing events; epidemics or pandemics (including the COVID-19 virus); (b) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells, processing and handling facilities or lines of pipe; (c) interruption and/or curtailment of transportation by downstream transporters or services providers due to the occurrence of a Force Majeure Event; (d) acts of others such as strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections, wars, terrorism or acts of the public enemy; and (e) governmental actions and other actions necessary for compliance with any court order, law, statute, ordinance, regulation or policy having the effect of law.
3.3Strikes; Lockouts. The settlement of strikes or lockouts shall be entirely within the discretion of the Party having the difficulty, and any obligation hereunder to remedy a Force Majeure Event shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing Party when such course is inadvisable in the sole discretion of the Party having the difficulty.
3.4Response to Force Majeure Events. In the event a Party is unable to perform its obligations hereunder due to a Force Majeure Event, that Party shall advise the other Party within a reasonable amount of time after the occurrence of the existence of such Force Majeure Event, followed by a written notice to the other Party of the existence of such Force Majeure Event with reasonable full particulars and the Party’s proposed cure for and remedy with respect to the Force Majeure Event as soon as reasonably practicable thereafter. The Party affected by a Force Majeure Event shall use commercially reasonable efforts to remedy and mitigate the effects of the Force Majeure Event with all reasonable diligence and dispatch.
3.5Emergencies. The Services Provider shall give the Services Recipient reasonable advance written notice of its intention to suspend its performance hereunder, except in cases of emergency where such notice is impracticable.
15
(b) | The Services Provider may resign from its obligations and duties as Services Provider hereunder at any time following ninety (90) days prior written notice to the Designated Representative of the Services Recipient; provided, however, that if such resignation occurs other than in connection with a termination of this Agreement pursuant to 0, such resignation shall constitute an Event of Default under the Services Recipient Credit Facility, subject to the terms, conditions and rights to cure therein. |
4.2Services Provider Default. The existence of any of the following events and conditions shall constitute a “Services Provider Default” hereunder:
(a) | failure on the part of the Services Provider to remit any payment or deposit any amount required hereunder within three Business Days of the time period so required; provided, however, that such three-Business Day cure period shall not be applicable if, at any time, the Services Provider shall fail to remit any payment or deposit any amount hereunder three times in any rolling 12-calendar month period; |
(c) | a Credit Event shall occur; |
(d) | W&T Offshore, Inc., a Texas corporation, ceases to be the Services Provider hereunder, and is not replaced by another Person acceptable to Lender in Lender’s reasonable discretion; or |
(e) | the Services Provider shall breach Section 0 or Section 0. |
16
(c) | Turnover and Delivery of Records. Upon any termination of this Agreement pursuant to Section (a)(ii) and receipt of a written request by the Services Recipient, the Services Provider shall immediately deliver to the Services Recipient any funds in the possession or control of the Services Provider that were, or were required to be, in the Operating Account or Control Account, and the Services Provider shall account for all such funds to the Services Recipient, and shall deliver possession of the Oil and Gas Properties or the Midstream Assets, as applicable, and all Records to Services Recipient or the Successor Services Provider, as directed by the Services Recipient. |
4.5Services Provider to Cooperate. The Services Provider agrees to reasonably assist the Successor Services Provider in effecting the termination and transfer of the responsibilities of the Services Provider hereunder and the transfer thereof to the Successor Services Provider, including the preparation, execution and delivery of the Records, and other such documents and instruments as may reasonably be required, and the transfer to the Successor Services Provider for administration by it of all cash amounts which shall at the time be held by the Services Provider or thereafter received with respect to the Oil and Gas Properties or the Midstream Assets in the manner and at such reasonable times as the Successor Services Provider shall reasonably request and do any other reasonable acts or things necessary to effect the purposes of termination and transfer, including, if requested by the Services Recipient, promptly notifying lessors of the termination of management of the Oil and Gas Properties and the Midstream Assets by the Services Provider, subject, in each case, to the Services Provider’s right to receive the Service Fee in connection for the provision of such transition services in addition to the Management Services.
17
At the mutual written agreement of the Services Provider and the Services Recipient, and subject to the continued payment of an agreeable fee set forth in such agreement, the Services Provider may continue to perform its obligations hereunder until such time as a Successor Services Provider has been appointed for a period not to exceed 90 days.
5.1Addresses for Notice. Unless otherwise specifically provided, any notice or other communication required or permitted hereunder shall be in writing and shall be delivered by hand, by bonded overnight courier or reputable overnight delivery service, by certified or registered mail, postage prepaid and return receipt requested, or by email (provided that confirmation of receipt of such email is requested and received, which confirmation shall be provided promptly following receipt). Notices sent by certified or registered mail, or courier or overnight delivery service, shall be deemed provided upon delivery as evidenced by the receipt of delivery. Notices delivered personally shall be deemed given upon delivery. Notices sent by email shall be deemed to have been provided upon the sending Party’s receipt of a non-automated response from the recipient Party. If any notice or communication is deemed given or provided on a day that is not a Business Day, or is deemed given or provided after five p.m. local time on a Business Day, than such notice or communication shall be deemed to have been provided on the next Business Day. If a date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next Day which is a Business Day. Notices to the Parties shall be delivered at the addresses set forth below:
If to A-I LLC, to:
Aquasition LLC
5718 Westheimer Road, Suite 700
Houston, Texas 77057
Attn.: Shahid Ghauri
E-mail: [Redacted]
With a copy (which shall not constitute notice) to:
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
Attn.: David Miller, Jeff Munoz
E-mail: [Redacted]
with an additional copy to:
Munich Re Reserve Risk Financing, Inc.
c/o Munich Re Trading LLC
1790 Hughes Landing Blvd., Suite 275
18
The Woodlands, Texas 77380
Attention: Justin Moers
Fax: 832-592-0053
Email: [Redacted]
If to A-II LLC, to:
Aquasition II LLC
5718 Westheimer Road, Suite 700
Houston, Texas 77057
Attn.: Shahid Ghauri
E-mail: [Redacted]
With a copy (which shall not constitute notice) to:
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
Attn.: David Miller, Jeff Munoz
E-mail: [Redacted]
with an additional copy to:
Munich Re Reserve Risk Financing, Inc.
c/o Munich Re Trading LLC
1790 Hughes Landing Blvd., Suite 275
The Woodlands, Texas 77380
Attention: Justin Moers
Fax: 832-592-0053
Email: [Redacted]
If to the Services Provider, to:
W&T Offshore, Inc.
5718 Westheimer Road, Suite 700
Houston, Texas 77057
Attn.: Shahid Ghauri
E-mail: [Redacted]
With a copy (which shall not constitute notice) to:
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, Texas 77002
Attn.: David Miller, Jeff Munoz
E-mail: [Redacted]
19
Either Party may change the address to which any notices or other communications required under this Agreement are to be addressed by giving written notice to the other Party in any of the methods provided in this Section 0. Such change in address shall be effective upon receipt of the applicable notice, pursuant to the terms of this Section 0.
(a) | Neither Party may assign, pledge or otherwise transfer, directly or indirectly, its rights or obligations, in whole or in part, under this Agreement except to an Affiliate, without the prior written consent of the other Party (which consent may be granted or withheld in the sole discretion of such other Party); provided, however, that each of the Services Recipient and the Services Provider may assign without such consent a security interest in its rights under this Agreement (i) in the case of the Services Recipient, to Lender and (ii) in the case of the Services Provider, to one or more lenders of the Services Provider. In each such case of a collateral assignment, the non-assigning Party shall (X) provide reasonable cooperation and assistance to permit perfection of any such security, including by way of acknowledgment of any assignment and (Y) at the request of the assigning Party, without further consideration, promptly execute and deliver, or cause to be executed and delivered, such consents to collateral assignment as may be required to effect such collateral assignment in connection with any such financing. |
(b) | Subject to the limitations on assignment contained in this Section 0, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. |
(c) | Any assignment made in contravention of this Section 0 shall be null and void ab initio. |
6.2Entire Agreement. This Agreement embodies and constitutes the entire agreement, and supersedes any prior agreements and understandings (whether written or oral), in each case, between the Parties with respect to the Management Services and the subject matter hereof. This Agreement may be amended or otherwise modified only by a document in writing signed by all Parties and expressly identified as such an amendment or modification. No representation, promise, understanding, condition or warranty not set forth herein has been made or relied upon by any Party in entering into this Agreement.
6.3Governing Law; Venue; Waiver of Jury Trial. This Agreement and the legal relations between the Parties shall be governed by and construed and interpreted in accordance with the laws of the State of Texas, excluding any conflicts of law rule or principle that might refer to the laws of another jurisdiction. Each Party irrevocably consents to personal jurisdiction in any federal or state court sitting in Houston, Texas in any action, suit or proceeding arising out of or in connection with this Agreement, and each Party waives any objection that such Party may now or hereafter have to the laying of venue of any such action, suit or proceeding in such courts and
20
any objection that such courts are an inconvenient forum or do not have jurisdiction over such Party. THE PARTIES HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING IN ANY MATTER WHATSOEVER ARISING OUT OF OR IN RELATION TO OR IN CONNECTION WITH THIS AGREEMENT.
6.4Headings; Captions. The Article and Section headings and captions in this Agreement are for convenience only, shall not give meaning to any of the terms of this Agreement and shall not otherwise affect the construction of this Agreement.
6.5References. All references to Sections, Articles and Exhibits shall be considered references to Sections and Articles of, and Exhibits to, this Agreement unless otherwise expressly indicated.
6.6Counterparts. This Agreement may be executed in any number of counterparts, and by the Parties in separate counterparts, each of which shall be an original but all of which together shall be considered one and the same instrument; provided, however, that no Party shall be bound by this Agreement unless and until all Parties have executed and delivered a counterpart. A copy of a signed counterpart transmitted by facsimile or electronically in portable document format (pdf) or similar format shall be valid for all purposes as a manually signed original counterpart.
6.7Waivers; Rights Cumulative. Any provision of this Agreement may be waived if, but only if, such waiver is in writing and is signed by the Party against whom the waiver is to be effective. No course of dealing on the part of the Services Recipient or the Services Provider, or their respective officers, directors, employees, agents or representatives shall operate as a waiver thereof or affect in any way the right of such Person at a later time to enforce the performance of such provision. No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver by the Services Recipient or the Services Provider of any condition or any breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation or warranty. The rights and remedies herein provided shall be cumulative and are not exclusive of any rights or remedies provided by law.
6.8Severability. If any provision hereof is or becomes illegal, invalid or unenforceable under applicable law or public policy, such provision shall be fully severable with respect to such law or public policy; this Agreement shall be construed and enforced in such jurisdiction as if such provision had never comprised a part hereof; the remaining provisions hereof shall remain in full force and effect and shall not be affected by such provision or by its severance herefrom; and all of the provisions hereof shall remain in full force and effect and shall not be affected by the severance of such provision so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to the Services Recipient or the Services Provider. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so
21
as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
6.9Third Party Beneficiaries. The Parties agree that Lender is an express Third Party creditor beneficiary in respect of the Services Provider’s obligations and the Services Recipient’s rights hereunder. Except as set forth in the preceding sentence, nothing in this Agreement shall create or be deemed to create any Third Party beneficiary rights in any Person that is not a Party and the respective successors and permitted assigns of a Party, or the Parties’ respective related indemnified Persons hereunder, or any other any rights, remedies, obligations or liabilities under or by reason of this Agreement; provided that only a Party and its respective successors and permitted assigns will have the right to enforce the provisions of this Agreement on its own behalf or on behalf of any of its related indemnified Persons (but shall not be obligated to do so).
6.10Compliance with Section 409A of Code. This Agreement is intended to comply with the provisions of section 409A of the Code, and shall be interpreted and construed accordingly. Each payment and benefit hereunder shall constitute a “separately identified” amount within the meaning of Treasury regulation §1.409A-2(b)(2). The Services Recipient and the Services Provider shall cooperate to amend the Agreement at any time to satisfy any requirements of section 409A of the Code or guidance provided by the U.S. Treasury Department to the extent applicable to the Agreement.
22
and such disclosing Party shall use commercially reasonable efforts to cooperate, at the expense of the other Party, with the other Party in pursuing such protective order or similar relief. |
6.12Joint Preparation; Costs. This Agreement will be deemed and considered for all purposes as prepared through the joint effort of the Parties and will not be construed against one Party or the other as a result of the preparation, submittal or other event of negotiation, drafting or execution of this Agreement. Except as otherwise specifically provided herein, all fees, costs and expenses incurred by the Services Provider or the Services Recipient in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the Person incurring the same, including legal and accounting fees, costs and expenses.
6.13Interpretation. Terms defined in a given number, tense or form shall have the corresponding meaning when used in this Agreement with initial capitals in another number, tense or form. The meaning assigned to each term defined in this Agreement shall be equally applicable to both the singular and the plural forms of such term and vice versa, and words denoting any gender shall include all genders as the context requires. Where a word or phrase is defined in this Agreement, each of its other grammatical forms shall have a corresponding meaning. Each accounting term not expressly defined in this Agreement will have the meaning given to it under U.S. generally accepted accounting principles, consistently applied. All references to “$” or “dollars” shall be deemed references to United States dollars. The terms such as “hereof,” “herein,” “hereto,” “hereinafter” and other terms of like import are not limited in applicability to the specific provision within which such references are set forth but instead refer to this Agreement taken as a whole. The words “include,” “includes,” and “including” when used in this Agreement shall be deemed to be followed by the words “without limitation,” and unless otherwise specified shall not be deemed limited by the specific enumeration of items, but shall be deemed without limitation. The term “or” is not exclusive. A reference to any Party to this Agreement or any other agreement or document shall include such Party’s successors and permitted assigns. References to any agreement, contract or applicable law are to that agreement, contract or applicable law as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any applicable law also includes applicable environmental laws and any rules and regulations promulgated under such applicable law. Time is of the essence in the performance of any provisions of this Agreement that specify a time for performance; provided,
23
however, that the foregoing shall not be construed to limit or deprive a Party of the benefits of any grace or cure period expressly set forth in this Agreement.
6.14Conflicts. If any of the terms of this Agreement conflict with the terms of the TSA, then the terms of the TSA shall control only in respect of such conflict and only until the termination of the TSA (in each case) except to the extent expressly provided to the contrary in the TSA.
[Signature pages follow.]
24
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
AQUASITION LLC, as A-I LLC
By:/s/ Shahid Ghauri
Name: |
Shahid Ghauri |
Its: |
Vice President, General Counsel and Corporate Secretary |
AQUASITION II LLC, as A-II LLC
By:/s/ Shahid Ghauri
Name: |
Shahid Ghauri |
Its: |
Vice President, General Counsel and Corporate Secretary |
W&T OFFSHORE, INC., as Services Provider
By:/s/ Shahid Ghauri
Name: |
Shahid Ghauri |
Its: |
Vice President, General Counsel and Corporate Secretary |
Signature Page to Management Services Agreement
MANAGEMENT SERVICES
The services required to be provided by the Services Provider under this Agreement (such required services, the “Management Services”) will include, in addition to the services expressly provided for in the body of this Agreement, the following services provided to the Services Recipient in connection with the Oil and Gas Properties and the Midstream Assets:
● | accounting and financial reporting services; |
● | administration of Services Recipient’s Operating Account and Control Account bank accounts; |
● | cash management and other treasury administration services (including with the Services Recipient’s written consent, and to the extent permitted or required by the Services Recipient Credit Facility, commodity hedging services); |
● | reporting and compliance services associated with the Services Recipient Credit Facility; |
● | payables administration and payment services; |
● | human resources, information technology and other support services; |
● | insurance, bonding and surety services; |
● | tax administration services, including preparation and filing of federal, state and local tax returns; |
● | services to assist in managing and resolution of disputes; |
● | miscellaneous limited liability company/corporation and administrative services; |
● | oversight of maintenance of tangible equipment and materials; |
● | administration and oversight of Hydrocarbons production, gathering, transportation, |
● | processing, treating and marketing, if any, prior to the point of sale to a Third Party; |
● | preparation of the reports provided for in Section 0; and |
● | services relating to the development, operation, maintenance and repair of the Oil and Gas Properties and the Midstream Assets, including (1) land management, (2) regulatory compliance and reporting, (3) technical services, reservoir management and environmental and (4) performance of the Services Recipient’s obligations under joint operating agreements with Third Parties and exercise of its rights thereunder. |
Exhibit B to Management Services Agreement
Exhibit 10.5
W&T OFFSHORE, INC.
AMENDED AND RESTATED INCENTIVE COMPENSATION PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
(Service-based Vesting)
Pursuant to the terms and conditions of the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan, as amended from time to time (the “Plan”), W&T Offshore, Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the number of Restricted Stock Units (the “RSUs”) and a Cash Award (the “Cash Award”) set forth below. This award of RSUs and the Cash Award (this “Award”) is subject to the terms and conditions set forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
|
|
Participant: |
|
Date of Grant: |
|
Total Number of Restricted Stock Units: |
|
Total Amount of Cash Award: |
|
Vesting Commencement Date: |
|
Vesting Schedule: |
Subject to Section 3(b) and Section 3(c) of the Agreement, the Plan and the other terms and conditions set forth herein, the Award shall vest and become exercisable according to the following schedule: [vesting schedule to be inserted]. For the avoidance of doubt, the Cash Award will be paid if, as and when the RSUs vest under this Agreement and the Plan. |
The Award described above is equal to ____% of your Base Salary (defined within the Agreement). The RSUs included in the Award are based on the strike price set by the Company for [insert award year]. To the extent you commenced employment after the beginning of the initial performance period, the Award has been adjusted to reflect that fact.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the
Exhibit 10.5
Committee regarding any questions or determinations that arise under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
[Signature Page Follows]
Exhibit 10.5
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.
W&T OFFSHORE, INC.
By:
Name:
Title:
PARTICIPANT
Name:
Exhibit 10.5
EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between W&T Offshore, Inc., a Texas corporation (the “Company”), and ____________________ (“you” or the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.
(a)“Base Salary” means your annual pay rate in effect at the Date of Grant through the applicable vesting period, (i) including any amounts deferred pursuant to an election under any 401(k) plan, pre-tax premium plan, deferred compensation plan, or flexible spending account sponsored by the Company or any Subsidiary, but (ii) excluding any incentive compensation, employee benefit, or other cash benefit paid or provided under any incentive, bonus or employee benefit plan sponsored by the Company or any Subsidiary, and/or any excellence award, gains upon stock option exercises, restricted stock grants or vesting, moving or travel expense reimbursement, imputed income, or tax gross-ups, without regard to whether the payment or gain is taxable income to you. To the extent you commence employment after the beginning of the initial vesting period, your Base Salary for that initial performance period shall mean the base salary you would receive working (based on your annual pay rate in effect on your first day of employment) for the period from your first day of employment until the end of the initial vesting period.
(b)“Disability” means “disability” (or a term of like import) as defined under an Individual Agreement or, in the absence of such an Individual Agreement that defines “disability” (or a term of like import), Disability shall mean (i) a physical or mental impairment of sufficient severity that, in the opinion of the Company, (A) you are unable to continue performing the duties assigned to you prior to such impairment or (B) your condition entitles you to disability benefits under any insurance or employee benefit plan of the Company or its Subsidiaries, and (ii) the impairment or condition is cited by the Company as the reason for your termination; provided, however, that in all cases, the term Disability shall be applied and interpreted in compliance with the Nonqualified Deferred Compensation Rules.
(c)“Individual Agreement” means an employment, severance, change in control or other agreement governing your service relationship with the Company or any Affiliate.
(d)“Normal Retirement” means “normal retirement” (or a term of like import) as defined under an Individual Agreement or, in the absence of such an Individual Agreement that defines “normal retirement” (or a term of like import), Normal Retirement shall mean the termination of your employment or service relationship with the Company and each of its Subsidiaries by which you are employed or provide services to due to your voluntary retirement on or after the date that you attain age 67.
Exhibit 10.5
2.Award. In consideration of the Participant’s past and/or continued employment with, or service to, the Company or its Affiliates and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, effective as of the Date of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby grants to the Participant the number of RSUs set forth in the Grant Notice and the amount of the Cash Award on the terms and conditions set forth in the Grant Notice, this Agreement and the Plan, which is incorporated herein by reference as a part of this Agreement. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control. To the extent vested, each RSU represents the right to receive one share of Stock, or the cash equivalent thereof, or any combination of both at the Company’s discretion, subject to the terms and conditions set forth in the Grant Notice, this Agreement and the Plan. Unless and until the Award has become vested in the manner set forth in the Grant Notice, the Participant will have no right to receive any Stock or other payments in respect of the Award. Prior to settlement of this Award, this Award represents an unsecured obligation of the Company, payable only from the general assets of the Company.
(a)Except as otherwise set forth in the remainder of this Section 3, the Award shall vest in accordance with the vesting schedule set forth in the Grant Notice. Unless and until the RSUs have vested in accordance with such vesting schedule, the Participant will have no right to receive any dividends or other distribution with respect to the RSUs. In the event of the termination of the Participant’s employment or other service relationship prior to the vesting of all of the Award (but after giving effect to any accelerated vesting pursuant to this Section 3), any unvested Award (and all rights arising from such Award and from being a holder thereof) will terminate automatically without any further action by the Company and will be forfeited without further notice and at no cost to the Company.
(b)Notwithstanding anything in the Grant Notice, this Agreement or the Plan to the contrary, subject to Section 11, the Award shall immediately become fully vested upon (i) the termination of the Participant’s employment or other service relationship with the Company or an Affiliate due to the Participant’s Disability or death, or (ii) upon a Change in Control.
(c)Notwithstanding anything in the Grant Notice, this Agreement or the Plan to the contrary, subject to Section 11, the Award shall receive pro-rata vesting upon the termination of the Participant’s employment or other service relationship with the Company or an Affiliate due to the Participant’s Normal Retirement. The pro-rata vesting shall be calculated by multiplying the number of unvested RSUs held by the Participant at the time of his or her Normal Retirement by a fraction, the numerator of which is the number of full months (counting the month in which the termination occurs as a full month) that have passed following the Date of Grant, and the denominator of which is 36 (the “Pro-Rata Fraction”). The pro-rata vesting for the Cash Award shall be calculated by multiplying the amount of the unvested Cash Award by the Pro-Rata Fraction.
4.Dividend Equivalents. In the event that the Company declares and pays a dividend in respect of its outstanding shares of Stock and, on the record date for such dividend, the Participant holds RSUs granted pursuant to this Agreement that have not been settled, the Company shall record the amount of such dividend in a bookkeeping account and pay to the
Exhibit 10.5
Participant an amount in cash equal to the cash dividends the Participant would have received if the Participant was the holder of record, as of such record date, of a number of shares of Stock equal to the number of RSUs held by the Participant that have not been settled as of such record date, such payment to be made on or within 60 days following the date on which such RSUs vest in accordance with Section 3. For purposes of clarity, if the RSUs (or any portion thereof) are forfeited by the Participant pursuant to the terms of this Agreement, then the Participant shall also forfeit the Dividend Equivalents, if any, accrued with respect to such forfeited RSUs. No interest will accrue on the Dividend Equivalents between the declaration and payment of the applicable dividends and the settlement of the Dividend Equivalents.
5.Settlement of Award. If the Participant is subject to Section 16(b) of the Exchange Act, the vested RSUs will be settled in the form of shares of Stock; provided, however, that the Committee shall retain the authority to modify the settlement form of the vested RSUs at any time prior to the applicable vesting date. If the Participant is not subject to Section 16(b) of the Exchange Act, the Committee, in its sole discretion, shall determine at the time of settlement whether the vested RSUs will be settled: (a) in a single lump sum cash payment in an amount equal to the Fair Market Value of Stock as of the date of settlement multiplied by the number of vested RSUs to be settled, (b) in shares of such Stock, or (c) in a combination of cash and shares of Stock. The Committee shall also determine whether the vested Cash Award will be settled: (i) in a single lump sum cash payment, (ii) in shares of Stock equal to the vested Cash Award divided by the Fair Market Value of Stock as of the date of settlement, or (iii) in a combination of cash and shares of Stock. Notwithstanding anything to the contrary within this Agreement or the Plan, the Committee retains the sole discretion to modify the form or amount of settlement of this Award at any time in order to maintain compliance with internal policies regarding the dilution of Stock, [insert the following clause if the Award is subject to a Committee policy limiting the number of shares of Stock for settlement in any award year: including the Committee’s policy in effect on the Date of Grant that no more than [insert annual aggregate annual limit of shares] shares of Stock shall be used for settlement of all equity-based compensation awards granted during the [insert award year] calendar year]. The applicable settlement of the vested Award will occur as soon as administratively practicable following the vesting of the Award pursuant to Section 3, but in no event later than 30 days after such vesting date. All shares of Stock issued hereunder shall be delivered either by delivering one or more certificates for such shares to the Participant or by entering such shares in book-entry form, as determined by the Committee in its sole discretion. The value of shares of Stock shall not bear any interest owing to the passage of time. Neither this Section 5 nor any action taken pursuant to or in accordance with this Agreement shall be construed to create a trust or a funded or secured obligation of any kind.
6.Tax Withholding. To the extent that the receipt, vesting or settlement of this Award results in compensation income or wages to the Participant for federal, state, local and/or foreign tax purposes, then (a) for any Participant that is subject to Section 16(b) of the Exchange Act, with respect to any portion of the Award that is required to be settled in the form of Stock pursuant to Section 5 above, the Company shall withhold from the Stock to be issued the number of shares of Stock necessary to satisfy the applicable tax obligation for that portion of the Award, unless the Committee takes action to provide for a different withholding method prior to the date of the event giving rise to the tax withholding obligation, and (b) for any Participant that is not subject to Section 16(b) of the Exchange Act, or with respect to any portion of the Award that is settled in the form of a cash payment, the Participant shall make arrangements satisfactory to the
Exhibit 10.5
Company for the satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include the delivery of cash or cash equivalents, Stock (including previously owned Stock, net settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement or the surrender of previously owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. The Participant acknowledges that there may be adverse tax consequences upon the receipt, vesting or settlement of this Award or disposition of the underlying shares and that the Participant has been advised, and hereby is advised, to consult a tax advisor. The Participant represents that the Participant is in no manner relying on the Board, the Committee, the Company or an Affiliate or any of their respective managers, directors, officers, employees or authorized representatives (including, without limitation, attorneys, accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of such tax consequences.
7.Non-Transferability. During the lifetime of the Participant, the RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the shares of Stock underlying the RSUs have been issued, and all restrictions applicable to such shares have lapsed. Neither the Award nor any interest or right therein shall be liable for the debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means, whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
8.Compliance with Applicable Law. Notwithstanding any provision of this Agreement to the contrary, the issuance of shares of Stock hereunder will be subject to compliance with all applicable requirements of applicable law with respect to such securities and with the requirements of any stock exchange or market system upon which the Stock may then be listed. No shares of Stock will be issued hereunder if such issuance would constitute a violation of any applicable law or regulation or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, shares of Stock will not be issued hereunder unless (a) a registration statement under the Securities Act is in effect at the time of such issuance with respect to the shares to be issued or (b) in the opinion of legal counsel to the Company, the shares to be issued are permitted to be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary for the lawful issuance and sale of any shares of Stock hereunder will relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority has not been obtained. As a condition to any issuance of Stock
Exhibit 10.5
hereunder, the Company may require the Participant to satisfy any requirements that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company.
9.Legends. If a stock certificate is issued with respect to shares of Stock issued hereunder, such certificate shall bear such legend or legends as the Committee deems appropriate in order to reflect the restrictions set forth in this Agreement and to ensure compliance with the terms and provisions of this Agreement, the rules, regulations and other requirements of the SEC, any applicable laws or the requirements of any stock exchange on which the Stock is then listed. If the shares of Stock issued hereunder are held in book-entry form, then such entry will reflect that the shares are subject to the restrictions set forth in this Agreement.
10.Rights as a Stockholder. The Participant shall have no rights as a stockholder of the Company with respect to any shares of Stock that may become deliverable hereunder unless and until the Participant has become the holder of record of such shares of Stock, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares of Stock, except as otherwise specifically provided for in the Plan or this Agreement.
11.Execution of Receipts and Releases. Any issuance or transfer of shares of Stock or other property to the Participant or the Participant’s legal representative, heir, legatee or distributee, in accordance with this Agreement shall be in full satisfaction of all claims of such Person hereunder. As a condition precedent to such payment or issuance, the Company may require the Participant or the Participant’s legal representative, heir, legatee or distributee to execute (and not revoke within any time provided to do so) a release and receipt therefor in such form as it shall determine appropriate; provided, however, that any review period under such release will not modify the date of settlement with respect to vested Award.
12.No Right to Continued Employment, Service or Awards. Nothing in the adoption of the Plan, nor the award of the Award thereunder pursuant to the Grant Notice and this Agreement, shall confer upon the Participant the right to continued employment by, or a continued service relationship with, the Company or any Affiliate, or any other entity, or affect in any way the right of the Company or any such Affiliate, or any other entity to terminate such employment or other service relationship at any time. The grant of the Award is a one-time benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future Awards will be granted at the sole discretion of the Company.
13.Legal and Equitable Remedies. The Participant acknowledges that a violation or attempted breach of any of the Participant's covenants and agreements in this Agreement will cause such damage as will be irreparable, the exact amount of which would be difficult to ascertain and for which there will be no adequate remedy at law, and accordingly, the parties hereto agree that the Company and its Affiliates shall be entitled as a matter of right to an injunction issued by any court of competent jurisdiction, restraining the Participant or the affiliates, partners or agents of the Participant from such breach or attempted violation of such covenants and agreements, as well as to recover from the Participant any and all costs and expenses sustained or incurred by the Company or any Affiliate in obtaining such an injunction, including, without limitation, reasonable
Exhibit 10.5
attorneys' fees. The parties to this Agreement agree that no bond or other security shall be required in connection with such injunction. Any exercise by either of the parties to this Agreement of its rights pursuant to this Section 13 shall be cumulative and in addition to any other remedies to which such party may be entitled.
14.Notices. All notices and other communications under this Agreement shall be in writing and shall be delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):
Attn: Vice President and General Counsel
5718 Westheimer Rd., Suite 700
Houston, Texas 77057
If to the Participant, at the Participant’s last known address on filed with the Company.
Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.
15.Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports and all other forms of communications) in connection with this and any other Award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which the Participant has access. The Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.
16.Agreement to Furnish Information. The Participant agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.
17.Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Award granted hereby; provided¸ however, that the terms of this Agreement shall not modify and
Exhibit 10.5
shall be subject to the terms and conditions of any Individual Agreement in effect as of the date a determination is to be made under this Agreement. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend this Agreement from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or this Agreement, any such amendment that materially reduces the rights of the Participant shall be effective only if it is in writing and signed by both the Participant and an authorized officer of the Company.
18.Severability and Waiver. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of such provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Waiver by any party of any breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such rights continues.
19.Clawback. Notwithstanding any provision in the Grant Notice, this Agreement or the Plan to the contrary, to the extent required by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, any SEC rule or any applicable securities exchange listing standards and/or (b) any policy that may be adopted or amended by the Board from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment and/or cancellation to the extent necessary to comply with such law(s) and/or policy.
20.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of texas applicable to contracts made and to be performed therein, exclusive of the conflict of laws provisions of texas LAW.
21.Successors and Assigns. The Company may assign any of its rights under this Agreement without the Participant’s consent. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein and in the Plan, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators and the Person(s) to whom the Award may be transferred by will or the laws of descent or distribution.
22.Headings. Headings are for convenience only and are not deemed to be part of this Agreement.
23.Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Delivery of an executed counterpart of the Grant Notice by facsimile or portable document format (.pdf) attachment to electronic mail shall be effective as delivery of a manually executed counterpart of the Grant Notice.
Exhibit 10.5
24.Section 409A. Notwithstanding anything herein or in the Plan to the contrary, the Award granted pursuant to this Agreement is intended to be exempt from the applicable requirements of the Nonqualified Deferred Compensation Rules and shall be limited, construed and interpreted in accordance with such intent. Nevertheless, to the extent that the Committee determines that the Award may not be exempt from the Nonqualified Deferred Compensation Rules, then, if the Participant is deemed to be a “specified employee” within the meaning of the Nonqualified Deferred Compensation Rules, as determined by the Committee, at a time when the Participant becomes eligible for settlement of the Award upon his “separation from service” within the meaning of the Nonqualified Deferred Compensation Rules, then to the extent necessary to prevent any accelerated or additional tax under the Nonqualified Deferred Compensation Rules, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant’s separation from service and (b) the Participant’s death. Notwithstanding the foregoing, the Company and its Affiliates make no representations that the Award provided under this Agreement is exempt from or compliant with the Nonqualified Deferred Compensation Rules and in no event shall the Company or any Affiliate be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules.
Exhibit 10.6
W&T OFFSHORE, INC.
AMENDED AND RESTATED INCENTIVE COMPENSATION PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
(Performance Vesting)
Pursuant to the terms and conditions of the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan, as amended from time to time (the “Plan”), W&T Offshore, Inc. (the “Company”) hereby grants to the individual listed below (“you” or the “Participant”) the number of performance-based restricted stock units (the “PSUs”) and a Cash Award (the “Cash Award”) set forth below. This award of PSUs and the Cash Award (this “Award”) is subject to the terms and conditions set forth herein and in the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
|
|
Participant: |
_____________________ |
Date of Grant: |
_____________________ |
Award Type and Description: |
The PSU is a Restricted Stock Unit Award granted as a Performance Award pursuant to Sections 6 and 8 of the Plan. This Award represents the right to receive shares of Stock in an amount up to 200% of the Target PSUs (defined below), subject to the terms and conditions set forth herein and in the Agreement. The Cash Award is a target cash value granted to you, which may be settled in an amount up to 200% of the Target Cash Award (defined below), subject to the terms and conditions set forth herein and in the Agreement. The number of Target PSUs and the Target Cash Award amount shall be referred to in the aggregate as the “Target Award.” Your right to receive settlement of this Award in an amount ranging from 0% to 200% of the Target Award shall vest and become earned and nonforfeitable upon (i) your satisfaction of the continued employment or service requirements described below under “Service Requirement” and (ii) the Committee’s certification of the level of achievement of the Performance Goal (defined below) (“Earned PSUs” or “Earned Cash Awards,” as applicable, or in the aggregate the “Earned Award”). The portion of the Target PSUs actually earned upon satisfaction of both of the foregoing requirements is referred to herein as the “Vested PSUs.” The portion of the Target Cash Award actually earned upon satisfaction of both of the foregoing requirements is referred to herein as the “Vested Cash Award.” The Vested PSUs and the Vested Cash Award shall be referred to in the aggregate as the “Vested Award.” |
Exhibit 10.6
Target Number of PSUs: |
_____________________ (the “Target PSUs”). |
Target Value of Cash Award: |
_____________________ (the “Target Cash Award”). |
Performance Period: |
[Insert period beginning on the Performance Period Commencement Date and ending on the Performance Period End Date]. |
Service Requirement: |
Except as expressly provided in Sections 4 and 5 of the Agreement, you must remain continuously employed by, or continuously provide services to, the Company or an Affiliate, as applicable, from the Date of Grant through [insert Service Vesting Date] (the “Service Vesting Date”) to be eligible to receive payment of this Award, which is also based on the level of achievement with respect to the Performance Goal (as defined below). |
Performance Goal: |
Subject to the terms and conditions set forth in the Plan, the Agreement and herein, the number of Target PSUs, if any, that become Earned PSUs during the Performance Period will be determined in accordance with the following table: Level of Achievement Percentage of Target PSUs Earned* < Threshold 0% Threshold [insert %] Target [insert %] Maximum [insert %] *The percentage of Target PSUs that become Earned PSUs for performance between the threshold, target and maximum achievement levels shall be calculated using linear interpolation. The Target Cash Award shall be subject to the same table set forth above for the Target PSUs, and will vest, if at all, at the same percentage as applicable to any Earned PSUs. The “Performance Goal” for the Performance Period is based on the [insert performance goal description], as described in Exhibit B attached hereto. |
Settlement: |
Settlement of the Vested PSUs and the Vested Cash Award shall be made in shares of Stock, cash, or a combination of Stock and cash, in accordance with Section 6 of the Agreement. |
Exhibit 10.6
The Target Award described above is equal to ____% of your Base Salary (defined within the Agreement). The Target PSUs included in the Award are based on the strike price set by the Company for [insert grant year]. To the extent you commenced employment after the beginning of the initial performance period, the Award has been adjusted to reflect that fact.
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Restricted Stock Unit Grant Notice (this “Grant Notice”). You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including portable document format (.pdf) and facsimile counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement.
[Signature Page Follows]
Exhibit 10.6
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly authorized, and the Participant has executed this Grant Notice, effective for all purposes as provided above.
W&T OFFSHORE, INC.
By:
Name:
Title:
PARTICIPANT
Name:
Exhibit 10.6
EXHIBIT A
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between W&T Offshore, Inc., a Texas corporation (the “Company”), and _________ (the “Participant”). Capitalized terms used but not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.
Exhibit 10.6
Exhibit 10.6
[The following paragraph is subject to revision at the discretion of the Committee in the event of a serving vesting schedule other than three years: Solely for purposes of determining the number of shares of PSUs or the percentage of the Cash Award, as applicable, which may lapse or vest pursuant to this Section 4(b), the Earned Award shall be referred to in two portions, two-thirds (2/3) of the Earned Award shall be the “Two-Year Portion”; the remaining and final one-third (1/3) of the Earned Award shall be the “Three-Year Portion.” Following a termination of your employment or service due to your Normal Retirement following the end of the Performance Period:
Exhibit 10.6
Exhibit 10.6
Exhibit 10.6
Exhibit 10.6
If to the Company, unless otherwise designated by the Company in a written notice to the Participant (or other holder):
W&T Offshore, Inc.
Attn: Vice President and General Counsel
5718 Westheimer, Suite 700
Houston, Texas 77057
If to the Participant, at the Participant’s last known address on filed with the Company.
Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have been duly given to the Participant when it is mailed by the Company
Exhibit 10.6
or, if such notice is not mailed to the Participant, upon receipt by the Participant. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so placed in the mail.
Exhibit 10.6
Exhibit 10.6
EXHIBIT B
PERFORMANCE GOAL FOR AWARD
[Insert description or formula for performance goal applicable to Award]
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tracy W. Krohn, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of W&T Offshore, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
Date: August 4, 2021 |
|
/s/ Tracy W. Krohn |
|
|
Tracy W. Krohn |
|
|
Chairman, Chief Executive Officer, President and Director |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Janet Yang, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of W&T Offshore, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
Date: August 4, 2021 |
/s/ Janet Yang |
|
Janet Yang |
|
Executive Vice President and Chief Financial Officer |
|
(Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of W&T Offshore, Inc. (the “Company”), hereby certifies, to the best of his or her knowledge, that the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 4, 2021 |
|
/s/ Tracy Krohn |
|
|
Tracy W. Krohn |
|
|
Chairman, Chief Executive Officer, President and Director |
|
|
(Principal Executive Officer) |
|
|
|
Date: August 4, 2021 |
|
/s/ Janet Yang |
|
|
Janet Yang |
|
|
Executive Vice President and Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |