# To my fellow
Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_WTI_2021/NYSE_WTI_2021.mmd` · pages 3-9_

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To my fellow
Shareholders,

These past two years have been truly extraordinary with everything from a global COVID-19 pandemic, to multiple years of active tropical storms in the Gulf of Mexico, to dramatic swings in oil and gas pricing. Through it all, we have persevered by remaining focused and committed to the core values that have guided our success for the past four decades: maximizing cash flow generation, operating efficiently, and striving to constantly improve the profitability of our assets at any commodity price. These are the operating principles we have focused on to build value for our shareholders, while developing and producing oil and gas resources in a safe and environmentally responsible manner. These core values have provided the foundation for W&T to profitably grow over the years through a combination of accretive property acquisitions, methodical integration and exploitation of those acquisitions, and successful development and exploratory drilling on our legacy fields, all while generating strong free cash flow to fund our growth. Our most valuable asset, our people, have done an excellent job adapting to the changing market conditions while maintaining the highest levels of safety and operational excellence. W&T finished 2021 on a particularly strong note, and we will carry this momentum into 2022 and beyond.

We are in a much stronger position today compared to a year ago, both operationally and financially. In every quarter of 2021, we produced positive free cash flow. We maintained strong levels of production at 38,100 barrels of oil equivalent per day in 2021, with about 47% being liquids. In 2021, we took several steps to enhance our liquidity, lower our net debt, and improve our financial flexibility for the future. Our net debt is down \(97 million since year-end 2020 and \)202 million since year-end 2019, while our liquidity improved by 70% year-over-year to $296 million at year-end 2021. Much of this improved

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"We are focused on building value for our shareholders, while developing and producing oil and gas assets in a safe and environmentally responsible manner."

financial flexibility is the result of the Munich Re transaction we did in May of 2021. You may recall that in 2019 we paid approximately $170 million for our Mobile Bay Area producing assets and related gas treatment facilities, which was a great price then and looks even better now. We transferred those assets to a wholly-owned special purpose vehicle in return for net cash proceeds from a $215 million first-lien non-recourse 7-year term loan to the SPVs at a very attractive fixed interest rate of 7%. When the debt is paid off, we will continue to own 100% of these assets. This allowed us to fully pay off our revolving credit facility and added substantial liquidity through additional cash on the balance sheet, enabling us to move quickly when opportunities arise. While the lender required hedging for this financing, we also utilized call options in our hedging strategy to maintain a lot of the upside on natural gas prices, which turned out to be beneficial for us as natural gas prices have increased substantially since early 2021.

In November 2021, we restructured our credit facility to provide us additional financial flexibility. We established a $100 million first priority lien secured revolving facility with a borrowing base of \(50 million with Calculus Lending. While we currently have no borrowings on the facility, it provides us access to additional capital at attractive terms.

In February 2022, W&T closed an accretive acquisition for just over $30 million. Having cash on our balance sheet allowed W&T to close the transaction quickly. We estimated at the time of the acquisition that these assets had proved reserves of approximately 5.5 million barrels of oil equivalent ("MMBoe") (69% oil) and 2P reserves of approximately 7.6 MMBoe. This accretive acquisition consists of over 50 gross producing wells, all of which W&T will operate, at Ship Shoal 230, South Marsh Island/Vermilion 191, and South Marsh Island 73. These assets provide a solid base of proved reserves and produce strong free cash flow. These properties are very complementary to our existing assets and there are a number of opportunities, both near-term and long-term, that will allow us
157.6

Proved Reserves (MMBoe)

38.1

Average Production (MBoe/d)

$558.0

Total Revenue ($mm)

$133.7

Cash Flow from Operations ($mm)

323

Employees

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![](images/5_0.jpg)

The map above shows the Company's shelf and deepwater leases in the Gulf of Mexico. The assets circled are those that were acquired in the ANKOR acquisition in February 2022.
to maximize the value of these assets. Acquisitions continue to be a core pillar of how we create value here at W&T and this is a great example of what we look for when we are evaluating an acquisition.

![](images/5_1.jpg)

We've always talked about our ability to generate free cash flow from our stable, long-life asset base and its importance to our long-term sustainability. That is particularly evident in our outstanding year-end reserve results. Proved reserves at year-end 2021 increased 9% to 157.6 MMBoe compared to 2020. While improved SEC pricing certainly contributed to the increase, we also had positive performance revisions of over 5 MMBoe. The positive performance revision is a testament to our reserve base, as it demonstrates our ability to maintain and even grow our reserves without acquisitions or without bringing online any new wells. Our solid 2P reserves are a major contributor to this result. The Company's reserve life index lengthened to 11.3 years, up from 9.4 years at the end of 2020. About 36% of year-end 2021 proved reserves were liquids with the balance being natural gas.

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In addition to increasing reserves, we also saw a dramatic increase in the present value of our proved reserves discounted at 10% ("PV-10"). The PV-10 value of W&T's SEC proved reserves at year-end 2021 was \(1.6 billion, an increase of 119% from year-end 2020. This was driven by improved pricing with an average realized crude oil price of \)65.25 per barrel and an average realized natural gas price of $3.68 per Mcf. Using NYMEX strip prices as of March 2, 2022, the PV-10 value of our year-end reserves increases to $2.0 billion.

Looking ahead to 2022, under the strengthening commodity pricing conditions, we are forecasting strong free cash flow generation, and we will continue to evaluate additional accretive acquisitions while systematically paying down debt. We are excited to integrate our newest acquisition of complementary assets that closed in February 2022. We are also bringing online the Cota well in the first quarter of 2022, which we drilled in early 2021 and encountered approximately 100 feet of net oil pay. We see a lot of opportunities in 2022 to expand our organic drilling program and expect to spend between \(70 and \)90 million in capital this year, excluding acquisitions, with a major part of that going to the drilling of a development deepwater well. We also have capital allocated for facilities, leasehold, seismic, recompletions and other expenditures associated with future drilling.

Environmental stewardship, sound corporate governance, and contributing positively to our employees and the communities where we work and operate are cornerstones of our culture. We believe that all employees have a responsibility to ensure that we operate with the highest standards related to ESG and we have empowered our management to allocate resources and tools necessary to create a working environment focused on accomplishing our ESG objectives. Last year we achieved a meaningful milestone by issuing our inaugural ESG report. It is a great foundation to build upon and we will continue to develop and enhance our ESG program over time. We are constantly looking at ways to be a better steward to the environment and the communities in which we operate. In February 2021, we consolidated the two Mobile Bay treating facilities into just one plant, the OTF facility. This consolidation allowed us to reduce our emissions, water usage, electricity usage, and operating costs without adversely impacting our workforce in the area.

In closing, I want to thank my management team and all of our employees for their continued hard work and dedication, as well as our Board for their guidance and support. We are projecting significant cash flow generation in 2022. We are increasing our capital spending in 2022 to evaluate attractive organic drilling opportunities. We are well positioned with a meaningful cash position and strong liquidity in the strong current pricing environment, which presents many opportunities for W&T. The Gulf of Mexico has a long history of prolific production, and we are constantly assessing the vast pool of assets it possesses for accretive acquisitions that meet our criteria and that are within our focus area. Our management team's 34% stake in W&T's equity ensures that management's interests are highly aligned with those of our shareholders. I am excited about the opportunities in front of us to add value to the business and look forward to a successful 2022 and beyond.

![](images/6_0.jpg)

Tracy W. Krohn

Founder, Chairman, Chief Executive Officer and President