|12 Months Ended|
Dec. 31, 2013
Notice of Suspension and Debarment
In November 2013, the parent company, W&T Offshore, Inc., received a Notice of Suspension and Proposed Debarment and a Notice of Clean Water Act Listing from the EPA. The first Notice suspends the parent company and proposes a three year debarment from participation in future federal contracts, including future federal oil and gas leases, and assistance activities and renders the parent company ineligible to receive any federal contracts or approved subcontracts or to act as an agent or representative on behalf of another in such transaction, or receive certain federal benefits. The second Notice provides a narrower prohibition on federal contracts or benefits for the parent company. The Notices stemmed from the Company’s previously disclosed plea agreement and corporate conviction on two criminal counts as described below under Federal Grand Jury Investigation. The Company has commenced discussions with the EPA Suspension and Debarment Official (the “EPA SDO”) and made filings to contest the limitations in both Notices and seek a resolution to remove the suspension in a cooperative fashion as soon as practicable. The timing and ultimate result of these efforts, however, cannot be predicted at this time.
The Company does not believe that the regulatory requirements for suspension and debarment exist. The Company has corrected the issues leading to the 2009 offenses that form the basis for suspension and debarment and has been and remains a responsible operator. Suspension is not necessary to protect the Government’s business interests. The Company believes the EPA action fails to recognize the Company’s compliance with the plea agreement referred to below to demonstrate that the conditions which gave rise to the violations have been corrected and that the Company is a responsible operator acting under a comprehensive environmental and safety compliance program.
Disqualification of waiver concerning certain supplement bonding requirements from the BOEM.
In November and December 2013, the parent company, W&T Offshore, Inc., received letters from the BOEM claiming that it no longer qualifies for a waiver of certain supplemental bonding requirements for potential offshore decommissioning, plugging, and abandonment liabilities. The letter notifies the parent company that it must provide supplemental bonding on certain of its offshore leases, rights of way and easements in the Gulf of Mexico. We believe that this action is without basis and inconsistent with regulatory requirements. We have had continuing discussions with representatives of the BOEM regarding this decision in an attempt to resolve this issue. We are also discussing potential additional supplemental bonding requirements that may be required to be met in the event that the BOEM’s decision regarding the parent company’s supplemental bonding waiver is not modified or reversed. While these discussions remain ongoing, in order to preserve our rights, in January 2014 we filed a Petition for Stay Pending Appeal and Request for Interim Relief with the U.S. Department of Interior’s Board of Land Appeals. The petition seeks a stay of any supplemental bonding requirements pending the appeal and to reverse BOEM’s revocation of W&T Offshore, Inc.’s waiver of supplemental bonding requirements. Initially, we were granted a stay until February 15, 2014 in response to our petition and recently we were granted a stay until April 15, 2014 to facilitate ongoing negotiations. We continue to believe that W&T Offshore, Inc. qualifies for a supplemental bonding waiver. We intend to continue to work with the BOEM staff to resolve this matter. If resolving this matter ultimately involves additional bonding, it will result in increased costs of conducting our offshore business and operations and could utilize a portion of the borrowing capacity available under our revolving bank credit facility.
Federal Grand Jury Investigation
The United States Attorney’s Office for the Eastern District of Louisiana, along with the Criminal Investigation Division of the U.S. Environmental Protection Agency (the “EPA”) conducted a federal grand jury investigation beginning in late 2010 of environmental law violations that occurred in 2009. In December 2012, an agreement was reached that resolved these environmental compliance matters and the agreement was approved by the federal district court in January 2013. Under the agreement, the Company on January 3, 2013 (i) pled guilty to one felony count under the Clean Water Act for altering monthly produced water discharge samples for the Ewing Banks 910 platform in 2009 and one misdemeanor count under the Clean Water Act for failure to report a discharge of a small amount of oil from the same platform in November 2009, (ii) paid a $0.7 million fine and $0.3 million for community service and (iii) entered into an environmental compliance program subject to a third-party audit. Under the agreement, the Company was placed on a three-year term of probation. The probation terms require that the Company commit no further environmental law violations, comply with an Environmental Compliance Plan during the probation period and take no adverse action against personnel who cooperated in the investigation. The agreement further stipulates that the Government will not seek any further criminal charges against the Company in this matter.
Notification by ONRR of fine for non-compliance.
In December 2013 and January 2014, we were notified by the Office of Natural Resources Revenue (“ONRR”) of an underpayment of royalties on certain Federal offshore oil and gas leases that cumulatively approximated $30,000 over several years. Based upon informal discussions with representatives of the ONRR, we believe that it is likely the ONRR will assess a statutory fine, which could be in an amount substantially in excess of the underpayment. If such an assessment is made in an amount we deem excessive, we intend to contest the fine to the fullest extent possible. We assessed the probability of paying a substantial fine as unlikely and have not accrued any amounts in our contingent liabilities as of December 31, 2013. However, we cannot state with certainty that our estimate of additional exposure is accurate concerning this matter.
Cameron Parish Louisiana Claim
Since 2009, certain Cameron Parish landowners have filed suits in the 38th Judicial District Court, Cameron Parish, Louisiana against the Company and Tracy W. Krohn as well as several other defendants unrelated to us. In their lawsuits, plaintiffs alleged that property they own has been contaminated or otherwise damaged by the defendants’ oil and gas exploration and production activities and they are seeking compensatory and punitive damages. During 2013 and 2012, we settled claims with certain landowners and paid $1.3 million and $10.0 million, respectively. There is one lawsuit pending in this matter and we assessed further claims to be unlikely and have not accrued any additional amounts in our contingent liabilities as of December 31, 2013. However, we cannot state with certainty that our estimate of additional exposure is accurate concerning this matter.
Qui Tam Litigation
On September 21, 2012, we were served with a complaint in a qui tam action filed under the federal False Claims Act by an employee of one of our contractors. The lawsuit, United States ex rel. Comeaux v. W&T Offshore, Inc., et al.; CA No. 10-494, was filed in the United States District Court for the Eastern District of Louisiana, against us and three other working interest owners related to claims associated with three of our operated production platforms. A qui tam action, also known as a “whistleblower” action, is a lawsuit brought by a private citizen seeking civil penalties or damages against a person or company on behalf of the government for alleged violations of law. If the claims are successful, the person filing the suit may recover a percentage of the damages or penalty from the lawsuit as a reward for exposing a wrongdoing and recovering funds on behalf of the government. This matter was more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. On November 5, 2013, the court granted the Company’s motion to dismiss and the complaint was dismissed with prejudice.
During the fourth quarter of 2012, underwriters of W&T’s excess liability policies (“Excess Policies”) (Indemnity Insurance Company of North America, New York Marine & General Insurance Company, Navigators Insurance Company, XL Specialty Insurance Company and Liberty Mutual Insurance Co.) filed declaratory judgment actions in the United States District Court for the Southern District of Texas seeking a determination that our Excess Policies do not cover removal-of-wreck and debris claims arising from Hurricane Ike to the extent we have first exhausted the limits of our Energy Package (defined as certain insurance policies relating to our oil and gas properties which includes named windstorm coverage) with only removal-of-wreck and debris claims. The court consolidated the various suits filed by the underwriters. We did not file any claims under such Excess Policies during 2013 but currently anticipate filing a claim under the policies in 2014. As of December 31, 2013, we have spent $45.7 million to date of removal-of-wreck costs and expect to incur an additional $1.9 million of removal-of-wreck costs associated with platforms damaged by Hurricane Ike. In January 2013, we filed a motion for summary judgment seeking the court’s determination that such Excess Policies do not require us to exhaust the limits of our Energy Package policies with only removal-of-wreck and debris claims. In July 2013, the District Court ruled in favor of the underwriters, adopting their position that the Excess Policies cover removal-of-wreck and debris claims only to the extent the limits of our Energy Package policies have been exhausted with removal-of-wreck and debris claims. We disagree with the Court’s ruling and have appealed the decision. Removal-of-wreck costs are recorded in Oil and natural gas properties and equipment on the Consolidated Balance Sheet. If we are successful in our appeal, any recoveries from claims made on these Excess Policies will be recorded as reductions in this line item, which will reduce the our DD&A rate.
In 2009, the Company recognized $5.3 million in 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 the calculations and support related to this usage fee, and in the third quarter of 2010, we were notified that the ONRR had disallowed approximately $4.7 million of the reductions taken. We recorded a reduction to other revenue of $4.7 million in the third quarter of 2010 to reflect this disallowance; however, we disagree with the position taken by the ONRR and we are pursuing our claim to resolve the matter.
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. 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, management believes 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.
Contingent Liability Recorded
We recognized expenses related to accrued and settled claims, complaints and fines of $0.5 million, $9.3 million and $1.7 million for the years 2013, 2012 and 2011, respectively. These expenses are reported within Operating costs and expenses on the statement of income and reflect the items noted above and other various claims, complaints and fines. As of December 31, 2013 and 2012, we have recorded a liability of $0.2 million and $1.3 million, respectively, which is included in Accrued liabilities on the Consolidated Balance Sheet, for the loss contingencies matters that include the events described above and other minor environmental and litigation matters which we are addressing in the normal course of business.
The entire disclosure for commitments and contingencies.
Reference 1: http://www.xbrl.org/2003/role/presentationRef