# To my fellow
shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_WTI_2020/NYSE_WTI_2020.mmd` · pages 3-9_

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To my fellow
shareholders

We founded W&T nearly 40 years ago, and from day one, we have been committed to building value for our shareholders while developing and producing oil and gas resources in a safe and environmentally responsible manner. We have profitably grown W&T over the years through the right combination of attractive 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. These core values have guided our success and provided the foundation for W&T to grow into a leading operator in the Gulf of Mexico, a generous partner to the communities where we operate, and good stewards to the environment.

Despite the multiple challenges we faced last year, we generated higher free cash flow for the full year 2020, than we did in 2019. We adjusted quickly to the changing environment early in 2020 by reducing our planned capital expenditures, and substantially reducing our operating expenses by operational efficiencies and temporarily shutting in some of our production due to the sharp decline in oil prices. In 2020, our capital expenditures were limited to just \(17.6 million. The lower decline profile of our conventional asset base allows for reductions in capital expenditures to align with changes in the pricing environment, without significantly impacting near-term production levels.

In early 2020 when there was significant uncertainty in the energy market, we judiciously utilized a portion of our 2020 free cash flow to retire \(72.5 million of our senior notes for a total cost of \)23.9 million, thereby saving over $7.1 million in annualized interest and preserving long-term capital. From January 1, 2020 through early March 2021, we reduced net debt by $135.3 million and have a stronger balance sheet now than in 2019.

While our production increased year-over-year to 42,046 Boe/d primarily due to the full year impact of additional production from the Mobile Bay and Magnolia acquisitions in the prior year, 2020 production was negatively impacted by the eight named storms that entered the GOM. In addition, we experienced planned and unplanned downtime at some of our facilities, and a combination of operated and

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Shelf Leases
Deepwater Leases

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"We have experienced quite a number of commodity price cycles through the years and two keys to our continued success have been our focus on generating positive free cash flow and capitalizing on opportunities for accretive acquisitions."

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non-operated production that was temporarily shut-in due to low oil prices, as well as expected natural decline.

Turning to costs, to combat the sharp downturn in prices in the first half of 2020, we swiftly implemented several successful initiatives to reduce our lease operating expenses ("LOE"). We swapped out higher cost contract personnel with full time employees, reduced transportation costs by lowering the number of boats and helicopters needed through operational efficiencies, cut workover and facilities costs through vendor and supplier costs reductions, and increased our focus on projects that maintain and optimize production. We did not diminish our commitment to safety, operational compliance or environmental protection with any of these actions. As a result of these cost saving initiatives, our full year 2020 LOE was down over \(20 million from the prior year, and down over \)50 million from preliminary forecasts for 2020 that included a full year of LOE related to the Mobile Bay and Magnolia acquisitions. Looking to build on these cost reduction efforts, we recently completed the consolidation of our two natural gas treatment facilities that serve the Mobile Bay area into a single facility with more than enough capacity for our current operations as well as production from future natural gas drilling projects in the area. The consolidation of these facilities is expected to result in approximately $5 million per year in savings, beginning in 2021, and it has the added benefit of reducing our carbon footprint by lowering our Scope 1 emissions.

We also made strides in lowering our G&A costs and in late 2020, we moved our corporate headquarters in Houston only a few miles down the road. Our new headquarters has about the same amount of space but the move will substantially reduce our costs. We continue to control the costs that we can, while focusing on improving margins.

Turning to our 2020 year-end reserve report, W&T's SEC proved reserves of 144.4 million barrels of oil equivalent ("MMBoe") were down only modestly from 2019. Upward revisions of 26.2 MMBoe in 2020 related to improved well performance and technical revisions, and 3.9 MMBoe from acquisitions and drilling, were offset by 27.7 MMBoe of reductions due to lower average realized SEC commodity prices of \(37.78 per barrel of oil and \)2.05 per thousand cubic feet of natural gas ("Mcf"), and 15.4 MMBoe of production. Our year-end 2020 proved reserves utilizing average realized NYMEX strip pricing of \(44.43 per barrel of oil and \)2.66 per Mcf of natural gas as of December 31, 2020 would have been 169.5 MMBoe.

About 34% of year-end 2020 reserves were liquids and the balance was natural gas. Our reserve life ratio at year-end 2020, based on year-end 2020 SEC proved reserves and 2020 production was 9.4 years. Based on NYMEX strip pricing, it was 11.0 years.

The PV-10 value of W&T's SEC proved reserves at year-end 2020 was \(741 million, down about 43% from year end 2019. This was driven by reduced average realized SEC pricing. However, utilizing average realized NYMEX strip pricing as of December 31, 2020, the PV-10 would have been \)1.1 billion. Pricing has continued to increase through the early part of 2021 which should positively impact our 2021 year-end reserves and PV-10 value.

For the three-year period 2018 through 2020, W&T's all-in reserve replacement cost was \(4.62 per Boe. We believe that is a very competitive cost for any U.S. E&P, and

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reinforces the value of both the acquisitions we have completed and the drilling successes that we have achieved.

Looking ahead to 2021, while we have a substantial inventory of drilling opportunities with potentially high rates of return, we are maximizing financial flexibility by moderating the amount of free cash flow that we allocate to our drilling capital in 2021. The current price environment should allow us to generate meaningful free cash flow which we can use to further reduce debt or potentially fund additional accretive acquisition opportunities. Accordingly, our capital spending in 2021 is currently expected to be in the range of \(30 to \)60 million, and will be focused on lower-risk, higher return projects. We have significant flexibility to adjust our spending up or down at any time since we have no long-term rig contracts or drilling obligations. Additionally, we are forecasting 2021 spending of between \(17 to \)21 million on asset retirement obligations.

At W&T our people are our most valuable asset and every employee has a responsibility to ensure that we operate with the highest regards toward Environment, Safety and Governance. Our Board has empowered management to allocate resources and tools necessary to add value to our stakeholders in a sustainable manner while accomplishing our ESG objectives. While ESG is an integral part of our corporate culture, our strategy has always been focused on operational excellence, safety and generating free cash flow, long before these values became trendy in the energy industry. I encourage our stakeholders to read our inaugural ESG report that has been posted to our web site that includes key metrics over the past three years that are aligned with SASB and TCFD standards and guidelines. 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 persevered and thrived through an extraordinarily difficult year in 2020 for energy companies. We saw oil prices and production impacted by the global COVID-19 pandemic, supply and demand imbalances and one of the most active tropical storm seasons ever seen in the GOM. Our success in 2020 was a testament to the efforts of all of our employees who maintained their commitment to W&T despite the personal issues they all faced due to the pandemic.

We have experienced quite a number of commodity price cycles through the years and two keys to our continued success have been our focus on generating positive free cash flow, which we did in every quarter in 2020, and capitalizing on opportunities for accretive acquisitions. We have a premier portfolio of both shallow water and deepwater properties in the GOM with low decline rates and significant upside. We have reduced a material amount of our debt and we believe that we are well positioned today to take advantage of the improved commodity environment and the many opportunities that 2021 may present for W&T. With a 35% stake in W&T's equity, our management team's interests are highly aligned with those of our shareholders. This alignment of interest ensures that we are truly incentivized to maximize shareholder value and mitigate risk.

Tracy W. Krohn
Founder, Chairman, Chief
Executive Officer and President

Tracy W. Krohn
Founder, Chairman, Chief
Executive Officer and President