W&T OFFSHORE INC - Quarter Report: 2011 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

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)

(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  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  þ    No  ¨

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

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

As of November 2, 2011, there were 74,461,440 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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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

See Notes to Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

See Notes to Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Condensed Consolidated Financial Statements.

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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 oil and natural gas producer focused primarily in the Gulf of Mexico and onshore Texas. The Company is active in the acquisition, exploitation, exploration and development of oil and natural gas properties. W&T has recently diversified its operations by expanding onshore in Texas.

Interim Financial Statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) 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 GAAP 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. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Reclassifications. Certain reclassifications have been made to the prior periods’ financial statements to conform to the current presentation.

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.

2. Acquisitions

On August 10, 2011, we completed the acquisition of Shell Offshore Inc.’s (“Shell”) 64.3% interest in the Fairway Field along with a like interest in the associated Yellowhammer gas processing plant (the “Fairway Properties”). The stated purchase price was $55.0 million, subject to certain adjustments, including adjustments from an effective date of September 1, 2010 until the closing date of August 10, 2011. Taking into account such adjustments, as of September 30, 2011, the cash purchase price component was $40.0 million. The decrease of $15.0 million primarily reflects net production cash flow, partially offset by plugging and abandonment costs incurred, from the effective date of September 1, 2010 to the closing date. The purchase price is subject to further post-effective date adjustments and final settlement is expected to occur in the first quarter of 2012. We assumed the asset retirement obligations (“ARO”) associated with the properties and plant which we have currently estimated to be $7.8 million. We are finalizing our assessment of the fair values of the assets acquired and liabilities assumed. Therefore, the purchase price allocation as described in the following table is preliminary and is subject to change. The acquisition was funded from borrowings under our revolving bank credit facility.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table presents the preliminary purchase price allocation for the acquisition of the Fairway Properties (in thousands):

On May 11, 2011, we completed the acquisition of approximately 21,900 gross acres (21,500 net acres) of oil and gas leasehold interests in the West Texas Permian Basin (the “Permian Basin Properties”) from Opal Resources LLC and Opal Resources Operating Company LLC (“Opal”). The stated purchase price was $366.3 million, subject to certain adjustments, including adjustments from an effective date of January 1, 2011 until the closing date of May 11, 2011. Taking into account such adjustments, as of September 30, 2011, the purchase price was $397.1 million. The increase of $30.8 million primarily reflects drilling costs in excess of cash flow from the effective date of January 1, 2011 to the closing date. Although further adjustments could occur to the purchase price, no further adjustments are expected at this time. The acquisition was funded from cash on hand and borrowings under our revolving bank credit facility.

The following table presents the purchase price allocation for the acquisition of the Permian Basin Properties (in thousands):

For the three months ended September 30, 2011, the Permian Basin Properties and the Fairway Properties accounted for $21.6 million of revenue, $8.8 million of direct operating expenses, $7.2 million of depreciation, depletion, amortization and accretion (“DD&A”) and $2.0 million of income taxes, resulting in $3.6 million of net income. For the nine months ended September 30, 2011, the Permian Basin Properties and the Fairway Properties accounted for $32.8 million of revenue, $10.7 million of direct operating expenses, $9.6 million of DD&A and $4.4 million of income taxes, resulting in $8.1 million of net income. Such amounts are for the period from each respective close date to September 30, 2011. The net income attributable to these properties does not reflect certain expenses, such as general and administrative expenses and interest expense; therefore, this information is not intended to report results as if these operations were managed on a stand-alone basis. In addition, the Permian Basin Properties and the Fairway Properties are not recorded in a separate entity for tax purposes; therefore, income tax was estimated using the federal statutory tax rate. Expenses associated with acquisition activities and transition activities related to these acquisitions for the three and nine months ended September 30, 2011 were $0.8 million and $1.4 million, respectively, and are included in general and administrative expenses.

Pro forma financial statements have been prepared due to the Permian Basin Properties being significant. The Fairway Properties acquisition, which was not significant, was combined with the Permian Basin Properties to disclose the effect of both acquisitions. The unaudited pro forma financial information was computed as if these two acquisitions had been completed on January 1, 2010. The historical financial information is derived from the unaudited historical consolidated financial statements of W&T and the unaudited historical statements of the sellers.

The pro forma adjustments were based on estimates by management and information believed to be directly related to the purchase of the Permian Basin Properties and the Fairway Properties. The pro forma financial information is not

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(Unaudited)

necessarily indicative of the results of operations had the purchase occurred on January 1, 2010. If the transactions had been in effect for the periods indicated, the results may have been substantially different. For example, we may have operated the assets differently than the sellers, realized sales prices may have been different and costs of operating the properties may have been different. The following table presents a summary of our pro forma condensed combined statements of income for the nine months ended September 30, 2011 and 2010 (in thousands except earnings per share):

The purchase price of both acquisitions may be subject to further adjustments. For these pro forma financial statements, we assumed the transactions were financed with borrowings from the revolving bank credit facility because the cash and cash equivalents balances for the assumed acquisition date was less than the cash and cash equivalents on hand used on the actual closing dates of the two acquisitions. Also, we assumed that the revolving bank credit facility capacity would have been increased due to the increase in reserves.

The following adjustments were made in the preparation of the condensed combined statement of income:

During 2010, we closed on two acquisition transactions. The first closed on April 30, 2010. Through our wholly-owned subsidiary, W&T Energy VI, LLC (“Energy VI”), we acquired all of Total E&P USA’s (“Total”) interest, including production platforms and facilities, in three federal offshore lease blocks located in the Gulf of Mexico and assumed the asset retirement obligations (“ARO”) for plugging and abandonment of the acquired interests. The adjusted purchase price was $121.3 million. The properties acquired from Total (the “Matterhorn/Virgo Properties”) are producing interests and include a 100% working interest in the Matterhorn field (Mississippi Canyon block 243) and a 64% working interest in the Virgo field (Viosca Knoll blocks 822 and 823). The second closed on November 4, 2010. Through Energy VI,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

we acquired all of Shell’s interests, including production platforms and facilities, in three federal offshore lease blocks located in the Gulf of Mexico and assumed the ARO for plugging and abandonment of the acquired interests. The adjusted purchase price was $134.2 million. The properties acquired from Shell (the “Tahoe/Droshky Properties”) are producing interests and include a 70% working interest in the Tahoe field (Viosca Knoll 783), 100% working interest in the Southeast Tahoe field (Viosca Knoll 784) and a 6.25% of 8/8ths overriding royalty interest in the Droshky field (Green Canyon 244).

3. Hurricane Remediation and Insurance Claims

During the third quarter of 2008, Hurricane Ike and, to a much lesser extent, Hurricane Gustav caused property damage and disruptions to our exploration and production activities. Our insurance policies in effect on the occurrence dates of Hurricanes Ike and Gustav had a retention requirement of $10 million per occurrence to be satisfied by us before we could be indemnified for losses. In the fourth quarter of 2008, we satisfied our $10 million retention requirement for Hurricane Ike in connection with two platforms that were toppled and were deemed total losses. Our insurance coverage policy limits at the time of Hurricane Ike were $150 million for property damage due to named windstorms (excluding certain damage incurred at our facilities of marginal significance) and $250 million for, among other things, removal of wreckage if mandated by any governmental authority. The damage we incurred as a result of Hurricane Gustav was below our retention amount.

Below is a summary of remediation costs and amounts approved for payments related to Hurricanes Ike and Gustav that were included in lease operating expense (in thousands), with bracketed amounts representing credits to expense:

We recognize insurance receivables with respect to capital, repair and plugging and abandonment costs as a result of hurricane damage when we deem those to be probable of collection, which arises when our insurance underwriters’ adjuster reviews and approves such costs for payment by the underwriters. Claims that have been processed in this manner have customarily been paid on a timely basis. Incurred expenses included revisions of previous estimates. Amounts in 2011 include return of reimbursements that were previously received by us related to prepayments based on preliminary estimates. See Note 4 for additional information about the impact of hurricane related items on our asset retirement obligations.

Below is a reconciliation of our insurance receivables from December 31, 2010 to September 30, 2011 (in thousands):

At September 30, 2011 and December 31, 2010, substantially all of the amounts in insurance receivables relate to the plugging and abandonment of wells and dismantlement of facilities damaged by Hurricane Ike. We expect that our available cash and cash equivalents, cash flow from operations and the availability under our revolving bank credit facility will be sufficient to meet necessary expenditures that may exceed our insurance coverage for damages incurred as a result of Hurricane Ike.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

4. 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. A summary of the changes to our asset retirement obligations is as follows (in thousands):

5. Derivative Financial Instruments

Our market risk exposure relates primarily to commodity prices and interest rates. From time to time, we use various derivative instruments to manage our exposure to commodity price risk from sales of oil and natural gas and interest rate risk from floating interest rates on our revolving bank credit facility. We do not enter into derivative instruments for speculative trading purposes. Our derivative instruments currently consist of commodity option contracts. We are exposed to credit loss in the event of nonperformance by the counterparties; however, we do not currently anticipate any of our counterparties being unable to fulfill their contractual obligations.

We account for derivative contracts in accordance with GAAP, which requires each derivative to be recorded on the balance sheet as an asset or a liability at its fair value. Changes in a derivative’s fair value are required to be recognized currently in earnings unless specific hedge accounting criteria are met at the time we enter into a derivative contract. We have elected not to designate our commodity derivatives as hedging instruments. For additional information about fair value measurements, refer to Note 7.

Commodity Derivative: During 2010, we entered into commodity option contracts to manage a portion of our exposure to commodity price risk from sales of oil through December 31, 2012. While these contracts are intended to reduce the effects of price volatility, they may also limit future income from favorable price movements. As of September 30, 2011, our open commodity derivatives were as follows:

At September 30, 2011, $4.4 million and $0.8 million were included in current assets and other long-term assets, respectively, related to our commodity derivative contracts. At December 31, 2010, $9.5 million and $5.4 million were included in accrued liabilities and other long-term liabilities, respectively, related to our commodity derivative contracts. Our

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(Unaudited)

derivative gain for the three months ended September 30, 2011 includes realized losses of $0.9 million and unrealized gains of $18.2 million related to our commodity derivatives. Our derivative gain for the nine months ended September 30, 2011 includes realized losses of $9.2 million and unrealized gains of $20.0 million related to our commodity derivatives. Our derivative loss for the three months ended September 30, 2010 includes a realized gain of $1.1 million and an unrealized loss of $5.9 million related to our commodity derivatives. Our derivative gain for the nine months ended September 30, 2010 includes realized and unrealized gains of $4.3 million and $4.5 million, respectively, related to our commodity derivatives.

Interest Rate Swap: Our interest rate swap contract with a fixed interest rate of 5.21% expired in August 2010. During the three months ended September 30, 2010, we recognized an unrealized gain of $1.0 million and a realized loss of $1.0 million for this contract. During the nine months ended September 30, 2010, we recognized an unrealized gain of $4.4 million and a realized loss of $4.7 million for this contract.

6. Long-Term Debt

On June 10, 2011, we issued $600 million of our senior notes at par with an interest rate of 8.5% and maturity date of June 15, 2019 (the “8.5% Senior Notes”). Interest is payable semi-annually in arrears on June 15 and December 15 of each year beginning on December 15, 2011. The 8.5% Senior Notes are unsecured and are fully and unconditionally guaranteed by certain of our subsidiaries. The restrictive covenants and redemption provisions of the 8.5% Senior Notes are substantially similar to the terms of the 8.25% Senior Notes due 2014 (the “8.25% Senior Notes”). At September 30, 2011, the outstanding balance of our 8.5% Senior Notes was $600 million and was classified at their carrying value as long-term debt. The estimated annual effective interest rate on the 8.5% Senior Notes is 8.7% which includes amortization of debt issuance costs. At September 30, 2011, the estimated fair value of the 8.5% Senior Notes was approximately $579 million. For additional details about fair value measurements, refer to Note 7.

In June and July of 2011, we used a portion of the net proceeds from the issuance of the 8.5% Senior Notes to repurchase all of our 8.25% Senior Notes, which had a principal amount of $450 million. Costs of $22.0 million related to repurchasing the 8.25% Senior Notes, which included repurchase premiums and the unamortized debt issuance costs, are included in the statement of income within the line item classification, Loss on extinguishment of debt. At December 31, 2010, the outstanding balance of our 8.25% Senior Notes was $450 million and was classified at their carrying value as long-term debt. At December 31, 2010, the estimated fair value of the 8.25% Senior Notes was approximately $441 million. For additional details about fair value measurements, refer to Note 7.

On May 5, 2011, we entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) which provides a revolving bank credit facility with an initial borrowing base of $525 million. This is a secured facility that is collateralized by our oil and natural gas properties. The Credit Agreement terminates on May 5, 2015 and replaces the prior Third Amended and Restated Credit Agreement (the “Prior Credit Agreement”), which would have expired July 23, 2012. The pricing terms and restrictive covenants of the Credit Agreement are substantially similar to the terms of the Prior Credit Agreement. Availability under the Credit Agreement is subject to a semi-annual borrowing base determination set at the discretion of our lenders. The amount of the borrowing base is calculated by our lenders based on their evaluation of our proved reserves and their own internal criteria. Any determination by our lenders to change our borrowing base will result in a similar change in the availability under our revolving bank credit facility.

Pursuant to the Credit Agreement, the initial borrowing base was adjusted due to the following two items. First, the initial borrowing base was reduced by $37.5 million due to the issuance of the 8.5% Senior Notes of $600 million. Second, the borrowing base was increased by $50 million due to the consummation of the acquisition of the Fairway Properties in August 2011. After these two transactions, our borrowing base was $537.5 million as of September 30, 2011. In October 2011, the borrowing base was re-determined by our lenders and increased to $575 million.

The Credit Agreement contains covenants that restrict, among other things, the payment of cash dividends and share repurchases of up to $60 million per year, borrowings other than from the revolving bank credit facility, sales of assets, loans to others, investments, merger activity, hedging contracts, liens and certain other transactions without the prior consent of the lenders. Letters of credit may be issued up to $90 million, provided availability under the revolving bank credit facility

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exists. We are subject to various financial covenants calculated as of the last day of each fiscal quarter including a minimum current ratio and a maximum leverage ratio as such ratios are defined in the Credit Agreement. We were in compliance with all applicable covenants of the Credit Agreement as of September 30, 2011.

Borrowings under the revolving bank credit facility bear interest at the applicable London Interbank Offered Rate (“LIBOR”) plus a margin that varies from 2.00% to 2.75% depending on the level of total borrowings under the Credit Agreement, or an alternative base rate equal to the applicable margin ranging from 1.00% to 1.75% plus the highest of the (a) Prime Rate, (b) Federal Funds Rate plus 0.50%, and (c) LIBOR plus 1.0%. The unused portion of the borrowing base is subject to a commitment fee of 0.50%. The estimated annual effective interest rate was 3.7% for the nine months ended September 30, 2011 for borrowings under the Credit Agreement and the Prior Credit Agreement and includes amortization of debt issuance costs, and excludes commitment fees and other costs.

Unamortized debt issuance costs of $0.7 million related to the Prior Credit Agreement were written off and are included in the statement of income within the line item classification, Loss on extinguishment of debt.

At September 30, 2011, we had $94 million in borrowings and $0.5 million in letters of credit outstanding under the revolving bank credit facility. At December 31, 2010, we had no borrowings and $0.4 million in letters of credit outstanding under the revolving bank credit facility provided by the Prior Credit Agreement.

7. Fair Value Measurements

We measure the fair value of our 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 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 futures prices. As described in Note 5, our derivative financial instruments are reported in the balance sheet at fair value and changes in fair value are recognized currently in earnings.

The fair value of our senior notes is based on quoted prices. The market for our senior notes is not an active market; therefore the fair value is classified within Level 2. The senior notes are reported in the balance sheet at their carrying value and their fair value is reported in Note 6.

8. Share-Based Compensation and Cash-Based Incentive Compensation

In 2010, the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (the “Plan”) was approved by our shareholders. As allowed by the Plan, in August 2010 and August 2011, the Company granted restricted stock units (“RSUs”) to certain of its employees and in January 2011, the Company granted restricted stock to one of its employees. RSUs are a long-term compensation component of the Plan, which are granted to only certain employees, and are subject to adjustments at the end of the applicable performance period based on the Company achieving certain predetermined performance criteria. The RSUs vest at the end of a specified deferral period. Prior to 2010, the Company granted only restricted stock to its employees. In 2011 and in prior years, restricted stock was granted to the Company’s non-employee directors under the Director Compensation Plan. In addition to share-based compensation, the Company may grant its employees cash-based incentive awards, which are a short-term component of the Plan, and are based on the Company and the employee achieving certain predetermined performance criteria.

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. We are also required to estimate forfeitures, resulting in the recognition of compensation cost only for those awards that actually vest.

At September 30, 2011, there were 2,157,482 shares of common stock available for award under the Plan and 568,783 shares of common stock available for award under the Directors Compensation Plan.

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Restricted Stock: The Company currently has unvested restricted shares outstanding issued to employees and non-employee directors. Restricted shares are subject to forfeiture until vested and 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 shares, including the right to vote and receive dividends or other distributions paid with respect to the shares.

A summary of share activity related to restricted stock for the nine months ended September 30, 2011 is as follows:

At September 30, 2011, the composition of our restricted stock awards outstanding, by year granted, was as follows:

Vesting is expected to occur, less any forfeitures, as follows:

The grant date fair value of restricted stock granted during the nine months ended September 30, 2011 and 2010 was $0.5 million and $0.4 million, respectively. The fair value of the shares that vested during the nine months ended September 30, 2011 and 2010 was $0.6 million and $0.1 million, respectively.

Restricted Stock Units: During 2011, the Company awarded to certain employees RSUs that are 100% contingent upon meeting a specified performance requirement for the year 2011. If the performance requirement is achieved, the RSUs awarded in 2011 will earn dividend equivalents effective January 1, 2012 at the same rate as dividends paid on our common stock. During 2010, the Company awarded to certain employees RSUs that were 100% contingent upon meeting a specified performance requirement, which was achieved in 2010. Effective January 2011, RSUs awarded in 2010 earn dividend equivalents at the same rate as dividends paid on our common stock. RSUs awarded in both years are subject to forfeiture until vested and cannot be sold, transferred or disposed of during the restricted period.

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A summary of share activity related to RSUs for the nine months ended September 30, 2011 is as follows:

During the nine months ended September 30, 2011 and 2010, the fair value of RSUs granted was $14.2 million and $12.0 million, respectively. No vesting of RSUs occurred in either time period.

Share-Based Compensation: A summary of incentive compensation expense under share-based payment arrangements and the related tax benefit for the three and nine months ended September 30, 2011 and 2010 is as follows (in thousands):

Cash-based Incentive Compensation: As defined by the Plan, annual cash-based incentive awards may be granted to eligible employees. These awards are performance-based awards consisting of one or more business criteria and individual performance criteria and a targeted level or levels of performance with respect to each of such criteria. Generally, the performance period is the calendar year and determination and payment is made in cash in the first quarter of the following year.

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Incentive Compensation: A summary of incentive compensation expense for the three and nine months ended September 30, 2011 and 2010 is as follows (in thousands):

As of September 30, 2011, unrecognized share-based compensation expense related to our outstanding restricted shares and RSUs was $1.1 million and $18.2 million, respectively. Unrecognized compensation expense will be recognized through April 2014 for restricted shares and November 2013 for RSUs.

9. Income Taxes

Income tax expense of $28.8 million and $68.8 million was recorded during the three and nine months ended September 30, 2011, respectively. Our effective tax rate for the three and nine months ended September 30, 2011 was 35.3% and 35.2%, respectively, which approximated the federal and state statutory rates. Income tax expense of $0.7 million and $7.8 million was recorded during the three and nine months ended September 30, 2010, respectively. Our effective tax rate for the three and nine months ended September 30, 2010 was 2.4% and 7.4%, respectively, and primarily reflects a reduction in our valuation allowance that was recorded in prior years.

Exclusive of interest, the amount of unrecognized tax benefit recorded in other liabilities as of September 30, 2011 and December 31, 2010 was $ 3.3 million and $3.6 million, respectively. We recognize interest and penalties related to unrecognized tax benefits in income tax expense and these amounts were immaterial for the nine months ended September 30, 2011 and 2010. The tax years from 2008 through 2010 remain open to examination by the applicable tax jurisdictions.

10. Earnings Per Share

The following table presents the calculation of basic earnings per common share for the three and nine months ended September 30, 2011 and 2010 (in thousands, except per share amounts):

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11. Dividends

During the nine months ended September 30, 2011, we paid regular cash dividends of $0.04 per common share per quarter. During the nine months ended September 30, 2010, we paid regular cash dividends of $0.04, $0.03 and $0.03 per common share per quarter, respectively. On October 31, 2011, our board of directors declared a cash dividend of $0.04 per common share, payable on December 1, 2011 to shareholders of record on November 16, 2011.

12. Contingencies

The United States Attorney’s Office for the Eastern District of Louisiana, along with the Criminal Investigation Division of the Environmental Protection Agency, is conducting a federal grand jury investigation of environmental compliance matters relating to surface discharges and reporting on four of our offshore platforms in the Gulf of Mexico. We are fully cooperating with the investigation. The United States Attorney’s Office has recently informed us that they are continuing with their investigation with the intent to seek a criminal disposition. We are not able at this time to estimate our potential exposure, if any, related to this 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.

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13. Supplemental Guarantor Information

Our payment obligations under the 8.5% Senior Notes and the Credit Agreement (see Note 6) are fully and unconditionally guaranteed by certain of our wholly-owned subsidiaries, Energy VI, which includes the operations of acquisitions closed in 2010 as described in Note 2, and W&T Energy VII, LLC which does not have any active operations, (together, the “Guarantor Subsidiaries”).

The following unaudited condensed consolidating financial information presents the financial condition, results of operations and cash flows of W&T Offshore, Inc. and other consolidated subsidiaries (“Parent Company”) and the Guarantor Subsidiaries, together with consolidating adjustments necessary to present the Company’s results on a consolidated basis. Consolidated subsidiaries other than the Guarantor Subsidiaries are considered “minor” under applicable accounting rules of the SEC.

Condensed Consolidating Balance Sheet as of September 30, 2011