W&T OFFSHORE INC - Quarter Report: 2007 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

For the quarterly period ended June 30, 2007

OR

For the transition period from                      to                     

Commission File Number 1-32414

W&T OFFSHORE, INC.

(Exact name of registrant as specified in its charter)

(713) 626-8525

(Registrant’s telephone number, including area code)

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

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

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company.    Yes  ¨    No  x

As of August 7, 2007, there were 76,220,203 shares outstanding of the registrant’s common stock, par value $0.00001.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

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PART I – FINANCIAL INFORMATION

W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Condensed Consolidated Financial Statements.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Operations. W&T Offshore, Inc. and subsidiaries, referred to herein as “W&T” or the “Company,” is an independent producer, active in the acquisition, exploitation, exploration and development of oil and natural gas properties in the Gulf of Mexico area.

Interim Financial Statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information 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 generally accepted accounting principles for complete financial statements. 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. The accompanying financial statements for the six months ended June 30, 2007 include approximately $3.7 million of lease operating expenses incurred in 2006 and a reduction of revenues of $3.0 million related to prior years. Such amounts were not deemed material with respect to either the results of prior years or the anticipated results and the trend of earnings for fiscal year 2007. 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, 2006.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

2. Recent Accounting Pronouncements

In June 2007, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues Task Force (“EITF”) Issue No. 06-11 (“EITF No. 06-11”), Accounting for the Income Tax Benefits of Dividends on Share-Based Payment Awards, which requires that tax benefits associated with dividends on share-based payment awards be recorded as a component of additional paid-in capital. EITF No. 06-11 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007. We are currently evaluating the impact that EITF 06-11 may have on our consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of this statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that SFAS No. 159 may have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value as that term is used in many accounting pronouncements, establishes a framework for measuring the fair value of assets and liabilities as already required by generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are currently evaluating the impact that SFAS No. 157 may have on our consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

3. Asset Retirement Obligations

Our asset retirement obligations primarily represent the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the end of their productive lives in accordance with applicable laws. Revisions of estimated liabilities include, among other things, revisions due to timing of settling certain asset retirement obligations. A summary of our asset retirement obligations is as follows (in thousands):

4. Long-Term Debt

As of June 30, 2007 and December 31, 2006 our long-term debt was as follows (in thousands):

Aggregate maturities of long-term debt for the periods ended December 31 are as follows (in millions): 2007–$1.5; 2008–$3.0; 2009–$3.0; 2010–$202.5; 2011–$0.0; thereafter–$450.0.

Private Offering of 8.25% Senior Notes due 2014. In June 2007, the Company sold and issued to eligible investors $450 million aggregate principal amount of 8.25% senior notes due 2014 (the “Notes”) pursuant to Rule 144A under the Securities Act of 1933, as amended. Net proceeds generated by the offering were approximately $444.7 million after underwriting fees of $4.1 million and legal, accounting, printing and various other fees of approximately $1.2 million. The Company used substantially all of the net proceeds from the private placement of the Notes to repay a portion of the outstanding borrowings under its Third Amended and Restated Credit Agreement (the “Credit Agreement”).

The Notes are unsecured senior obligations of the Company, rank senior in right of payment to any future subordinated indebtedness, rank equally in right of payment with the Company’s existing and any future unsecured senior indebtedness and are effectively subordinated in right of payment to any secured indebtedness, including obligations under the Credit Agreement, to the extent of the collateral securing such indebtedness.

The Notes are jointly and severally guaranteed on a senior unsecured basis by the Company’s existing subsidiaries (other than certain minor non-guarantor subsidiaries) and any future domestic subsidiaries that (a) have indebtedness outstanding in excess of $5.0 million, or (b) guaranty any other indebtedness of the Company or of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

another guarantor in excess of $5.0 million. In the future, the guarantees may be released or terminated under certain circumstances. Each subsidiary guarantee ranks senior in right of payment to any future subordinated indebtedness of that guarantor, ranks equally in right of payment to any future senior indebtedness of that guarantor, and is subordinate in right of payment to any secured indebtedness of that guarantor, including indebtedness under the Credit Agreement, to the extent of the collateral securing such indebtedness.

The Notes bear interest at a fixed rate of 8.25%, with interest payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2007. The Notes mature on June 15, 2014. The Company is not required to make sinking fund payments with respect to the Notes. The estimated annual effective interest rate on the Notes is 8.4%.

The Company may redeem the Notes, in whole or in part, at any time prior to June 15, 2011, at a redemption price equal to 100% of the aggregate principal amount redeemed plus a make-whole premium and accrued and unpaid interest. Beginning on June 15 of the years indicated below, the Company may redeem the Notes from time to time, in whole or in part, at the prices set forth below (expressed as percentages of the principal amount redeemed) plus accrued and unpaid interest:

In addition, prior to June 15, 2010, the Company may redeem up to 35% of the aggregate principal amount of the Notes with the net cash proceeds of one or more equity offerings, at a price equal to 108.25% of the principal amount of the Notes redeemed, plus accrued and unpaid interest. If the Company experiences a change of control (as defined in the indenture governing the Notes), subject to certain exceptions, each holder of the Notes will have the right to require the Company to repurchase all or any part of that holder’s Notes in an amount equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest.

The Company and its restricted subsidiaries are subject to certain covenants under the indenture governing the Notes which limit the Company’s and each of its restricted subsidiaries’ ability to, among other things, make investments, incur additional indebtedness or issue preferred stock, sell assets, consolidate, merge or transfer all or substantially all of its assets, engage in transactions with affiliates, pay dividends or make other distributions on capital stock or subordinated indebtedness and create unrestricted subsidiaries.

Credit Agreement. The Credit Agreement was amended in June 2007 whereby the amount of senior unsecured indebtedness the Company may incur was increased to $500 million to allow for the issuance of the Notes, provided that the proceeds from the Notes would be used to prepay the Tranche A term loan facility in full. Consequently, in June 2007, the Company paid in full the Tranche A term loan facility outstanding balance of $50.0 million plus accrued and unpaid interest of $0.2 million. The Company also used proceeds from the Notes to make a payment of $90.0 million on the Tranche B term loan facility balance outstanding plus accrued and unpaid interest of $1.5 million, and to pay in full the revolving loan facility outstanding balance of $271.0 million. At June 30, 2007, we had $300.0 million of undrawn capacity available under our revolving loan facility. During the quarter ended June 30, 2007, we recorded a loss of $2.8 million related to the write-off of all the deferred financing costs related to the Tranche A term loan facility and a pro-rata portion of the deferred financing costs related to the Tranche B term loan facility.

Borrowings under the revolving loan facility bear interest at either (1) the higher of the Prime Rate, or the Federal Funds Rate plus 0.50%, plus a margin which varies from 0.0% to 0.625% or (2) to the extent the loan outstanding is designated as a Eurodollar loan, at the London Interbank Offered Rate plus a margin that varies from 1.25% to 1.875%. Borrowings under the Tranche B facility bear interest at either (1) the higher of the Prime Rate,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

or the Federal Funds Rate plus 0.50%, plus a margin equal to 1.25% or (2) to the extent the loan outstanding is designated as a Eurodollar loan, at the London Interbank Offered Rate plus a margin equal to 2.25%. The effective interest rates, including amortization of the discount, on the revolving and Tranche B loans were 10.1% and 8.4%, respectively, during the six months ended June 30, 2007.

The Credit Agreement was also amended to eliminate the requirement to maintain interest rate hedging contracts with respect to at least 50% of the aggregate principal amount outstanding of the Tranche A and Tranche B term loans. In June 2007, we terminated the interest rate swap contract associated with our Tranche A term loan (see Note 5).

We are subject to various financial covenants calculated as of the last day of each fiscal quarter, including a current ratio, interest coverage ratio, asset coverage ratio and a leverage ratio. We were in compliance with all applicable covenants of the Credit Agreement as of June 30, 2007.

5. Derivative Financial Instruments

We account for our derivative contracts in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended, requires each derivative to be recorded on the balance sheet as an asset or a liability at its fair value. Additionally, the statement requires that changes in a derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met at the time the derivative contract is entered into. Counterparties to our derivative contracts expose the Company to credit loss in the event of nonperformance; however, we do not anticipate nonperformance by the counterparties.

Commodity Derivatives. In January 2006, we entered into commodity swap and option contracts in connection with the anticipated financing related to the acquisition by merger of a wholly-owned subsidiary of Kerr-McGee Oil & Gas Corporation (“Kerr-McGee”). While these contracts are intended to reduce the effects of volatile oil and natural gas prices, they may also limit future income from favorable price movements. Changes in the fair value of our commodity derivative contracts are recognized currently in earnings.

During the three months ended June 30, 2007 and 2006, we recorded an unrealized loss of $0.9 million and $12.8 million, respectively, related to our open commodity derivative contracts, and we recorded a realized gain of $0.8 million and $2.2 million, respectively, related to settlements of our commodity derivatives.

During the six months ended June 30, 2007 and 2006, we recorded an unrealized loss of $14.8 million and $7.5 million, respectively, related to our open commodity derivative contracts, and we recorded a realized gain of $2.7 million and $2.2 million, respectively, related to settlements of our commodity derivatives.

At June 30, 2007, $4.8 million was included in prepaid expenses and other assets, $1.3 million was included in other assets, $2.2 million was included in accrued liabilities and $1.7 million was included in other liabilities related to our open commodity derivatives.

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

As of June 30, 2007, our open commodity derivatives were as follows:

As of December 31, 2006, our open commodity derivatives were as follows:

Interest Rate Swaps. The Credit Agreement required that we enter into interest rate hedging contracts with respect to at least 50% of the aggregate principal amount outstanding of our Tranche A and Tranche B term loans. In June 2007, we amended the Credit Agreement to eliminate the requirement to maintain interest rate hedging contracts with respect to the Tranche A and Tranche B term loans. Subsequently, we paid our Tranche A term loan in full and terminated the interest rate swap associated with the Tranche A term loan.

In June 2007, we made a payment of $90.0 million on the outstanding balance of the Tranche B term loan. In connection with this payment, we de-designated as a cash flow hedge 30% ($45.0 million) of the notional amount of the interest rate swap associated with the Tranche B term loan. As of the date of de-designation (June 14, 2007), the fair value of the de-designated portion of the swap was approximately $0.3 million (net of income tax), which was recorded in accumulated other comprehensive income and will be recognized in earnings through interest expense over the remaining term of the interest rate swap. From the date of de-designation, subsequent changes in the fair value of the de-designated portion of the interest rate swap will be immediately recognized in earnings. During the three and six months ended June 30, 2007, we recorded an unrealized loss of $0.2 million related to the portion of our interest rate swap that is no longer designated as a cash flow hedge. The remaining 70% ($105.0 million) of the notional amount continues to be designated as a cash flow hedge under SFAS No. 133 and represents 50% of the principal amount outstanding on the Tranche B term loan as of June 30, 2007.

All interest rate swap payments are made quarterly and the LIBOR rate is determined in advance of each interest period. The fixed interest rate of the swap related to the Tranche B term loan is 5.16%. The effective interest rate, including amortization of the discount, on the Tranche B loan was 8.4% during the six months ended June 30, 2007. The swap has been determined to be highly effective as it relates to the variability in the LIBOR rate and therefore qualifies, and is designated by management, as a cash flow hedge under SFAS No. 133.

At June 30, 2007, $0.2 million, net of income tax, of the unrealized gain in accumulated other comprehensive income relates to the fair value of the portion of the interest rate swap that continues to be designated as a cash flow hedge. Gains or losses on this portion of the swap are recorded to interest expense when realized and could vary from the unrealized amount shown above as a result of future changes in interest rates. For the three and six months ended June 30, 2007, no amount was recognized in earnings due to ineffectiveness related to our interest rate swap.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

6. Income Taxes

We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of SFAS No. 109, (“FIN 48”), effective January 1, 2007. The adoption of FIN 48 did not have an effect on our consolidated financial statements.

As of June 30, 2007, we do not have any accrued interest or penalties related to uncertain tax positions; however, when applicable, we will recognize interest and penalties related to uncertain tax positions in income tax expense. The tax years from 2003 through 2006 remain open to examination by the tax jurisdictions to which we are subject.

Our effective tax rate for the six months ended June 30, 2007 was approximately 34% and reflects the utilization of the deduction for income attributable to qualified domestic production activities under Section 199 of the Internal Revenue Code.

7. Insurance Receivables

In March 2007, we entered into agreements with our insurance underwriters to settle all claims related to Hurricanes Katrina and Rita, as well as a claim to recover drilling costs on a well at Green Canyon 82 that experienced uncontrollable water flow in the second quarter of 2006. After adjustments for applicable deductibles and reimbursements of $21.9 million received in 2006 and $4.8 million received in February 2007, the Company received proceeds of $73.3 million in March 2007. Total reimbursements of $78.1 million received in the first quarter of 2007 exceeded our insurance receivables at December 31, 2006 by $2.9 million. Such amount was used to offset a portion of our hurricane remediation costs incurred in 2007 which totaled $19.7 million through June 30, 2007. Included in lease operating expenses for the three and six months ended June 30, 2007 is $5.9 million and $13.0 million, respectively, for hurricane remediation expenses that were not covered by insurance. We expect to recover approximately $3.8 million under the insurance policy of one of our partners, which is included in current assets at June 30, 2007. We anticipate incurring additional costs to repair damage to our facilities caused by Hurricanes Katrina and Rita during the remainder of 2007, most, if not all, of which is not expected to be covered by insurance. During the six months ended June 30, 2007, uninsured expenditures were classified as lease operating expenses and any such future expenditures are expected to be classified similarly. The timing of future repairs will be affected by equipment availability, design and remediation planning and permitting.

8. Long-Term Incentive Compensation

2006 Bonus. In March 2007, our board of directors approved payment of a general bonus and an extraordinary performance bonus to our employees for 2006 in accordance with the W&T Offshore, Inc. 2005 Annual Incentive Plan (the “2005 Plan”). Each type of bonus includes a cash component and a restricted stock component.

Cash bonuses for 2006 (general bonus and extraordinary performance bonus) were paid in March 2007 and totaled $6.4 million, of which $4.7 million was expensed in 2006, $1.3 million was expensed in the first quarter of 2007 and the remainder was billed to partners under joint operating agreements.

The restricted stock portion of the 2006 bonus (general bonus and extraordinary performance bonus) was granted in March 2007 by the issuance of 329,813 restricted shares of our common stock with a fair value of approximately $9.0 million. The associated compensation expense, less an allowance for estimated forfeitures, is being recognized over the requisite service period of four years beginning on the first day of 2006. Accrued liability amounts of approximately $2.2 million ($1.9 million in 2006) related to the recognition of compensation expense during the service period prior to the issuance of the restricted shares were reclassified to additional paid-in capital upon issuance of the restricted shares in March 2007 (see Note 9).

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W&T OFFSHORE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

2007 Bonus. Eligible employees will be entitled to receive a general bonus and an extraordinary performance bonus for 2007 in accordance with the 2005 Plan, consisting of cash and restricted stock. Shares of restricted stock to be awarded as a bonus for 2007 shall be issued in 2008 and have a four year requisite service period and will vest in three equal installments on December 31, 2008, 2009 and 2010. The cash bonus for 2007 will be paid in 2008. During the three months ended June 30, 2007, we expensed $0.5 million related to the general bonus for 2007, of which $0.2 million will ultimately be settled in restricted shares. During the six months ended June 30, 2007, we expensed $2.0 million related to the general bonus for 2007, of which $0.6 million will ultimately be settled in restricted shares (see Note 9).

9. Share-Based Compensation

We recognize compensation cost for share-based payments to employees and non-employee directors over the period during which the recipient is required to provide service in exchange for the award, based on the fair value of the equity instrument on the date of grant. At June 30, 2007, there were 1,838,239 shares of common stock available for award under our share-based payment plans. A summary of share activity pursuant to our share-based payment plans for the six months ended June 30, 2007, is as follows:

Restricted shares generally vest in three equal installments with the first such installment vesting on December 31 of the year in which the shares are granted and annually thereafter. The weighted average grant date fair value of restricted shares granted during the six months ended June 30, 2007 and 2006 was $9.4 million and $6.2 million, respectively.

During the three months ended June 30, 2007 and 2006, total compensation expense under share-based payment arrangements was $1.2 million and $0.6 million, respectively, of which $1.0 million and $0.3 million, respectively, was credited to additional paid-in capital. During each of the six month periods ended June 30, 2007 and 2006, total compensation expense under share-based payment arrangements was $2.4 million, of which $1.8 million was credited to additional paid-in capital during the period ended in 2007 and $1.6 million was credited to additional paid-in capital during the period ended in 2006. Prior to the granting of the restricted shares, the associated compensation expense is recorded as an accrued liability. As of June 30, 2007, there was $7.1 million of total unrecognized share-based compensation expense related to restricted shares issued, which is expected to be recognized between July 2007 and April 2010.

10. Earnings Per Share

Basic earnings per share was calculated by dividing net income applicable to common shares by the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share incorporates the potential dilutive impact of nonvested restricted stock outstanding during the periods presented.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The reconciliation of basic and diluted weighted average shares outstanding and earnings per share is as follows (in thousands, except per share amounts):

11. Comprehensive Income

Our comprehensive income for the periods indicated is as follows (in thousands):

12. Dividends

On May 1, 2007, we paid a cash dividend of $0.03 per common share to shareholders of record on April 13, 2007. On May 15, 2007, our board of directors declared a cash dividend of $0.03 per common share, which was paid on August 1, 2007 to shareholders of record on July 13, 2007.

13. Contingencies

The Company is a party to various pending or threatened claims and complaints seeking damages or other remedies concerning its commercial operations and other matters in the ordinary course of its business. Some of these claims relate to matters occurring prior to its acquisition of properties and some relate to properties it has sold. In certain cases, the Company is entitled to indemnification from the sellers of properties and in other cases, it has indemnified the buyers of properties from it. Although the Company can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on it, 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 its consolidated financial position, results of operations or liquidity.

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Forward-Looking Statements

The following discussion and analysis should be read in conjunction with our accompanying unaudited condensed consolidated financial statements and the notes to those financial statements included elsewhere in this quarterly report. The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities and Exchange Act that involve risks, uncertainties and assumptions. 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. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, such as those statements that address activities, events or developments that we expect, believe or anticipate will or may occur in the future. These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Certain factors that may affect our financial condition and results of operations are discussed in Item 1A “Risk Factors” and Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2006 and may be discussed from time to time in subsequent reports filed with the Securities and Exchange Commission. We assume no obligation, nor do we intend, to update these forward-looking statements. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “W&T,” “we,” “us,” “our” and the “Company” refer to W&T Offshore, Inc. and its subsidiaries.

Overview

W&T is an independent oil and natural gas producer focused in the Gulf of Mexico area. W&T has grown through acquisitions, exploitation and exploration and currently holds working interests in over 150 producing fields in federal and state waters. The majority of our daily production is derived from wells we operate.

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):

See footnotes beginning on page 14.

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