-$3.00
$2.40
bear -$3.00
base $0.10
bull $2.40
margin of safety $1.00
market price* $3.80
Business condition attached to the margin of safety
Two consecutive fiscal years of owner earnings above roughly $40 million (after all development capital, plugging-and-abandonment spending and stock compensation) at realized prices of $42 per barrel of oil equivalent or less, which would show unit costs are back near 2023 levels, AND the surety collateral litigation resolved without a material cash collateral requirement.
WHAT THE BUSINESS IS W&T Offshore produces oil, natural gas and natural gas liquids from mature fields in the shallow and deep waters of the Gulf of Mexico (now officially the Gulf of America) off Louisiana, Texas and Alabama. It rarely drills big new projects. Its model is to buy producing fields that larger companies are leaving, run them cheaply, and eventually plug and abandon them. In 2025 it produced 12.4 million barrels of oil equivalent (about 34,000 a day) and ended the year with 121 million barrels of proved reserves, roughly ten years of output. Its reserve engineers expect about a third of those reserves to be produced within three years, so the asset base is depleting quickly and has to be replaced by buying more fields. HOW WE MEASURED EARNINGS We start from operating cash flow, remove working-capital swings, and subtract stock compensation and all spending on existing properties. We treat the company's ongoing plugging-and-abandonment spending ($34-40 million a year recently) as a real operating cost. Field acquisitions (for example $188 million for Mobile Bay in 2019 and $81 million for six fields in 2024) are kept out of the yearly figures and handled in the valuation. In 2016-2018 part of the interest bill was paid through the financing section under debt-restructuring accounting; we deducted it. We did not treat any spending as 'growth' investment, because W&T's revenue swings come from oil and gas prices, not from growing volumes. On that basis owner earnings per share for 2016-2025 were: -$0.02, $0.21, $0.95, $0.62, $0.61, $0.45, $2.04, $0.31, $0.05 and -$0.11. The ten-year median, which spans the 2016 and 2020 price troughs and the 2022 spike, is about $0.38. WHY THAT MEDIAN OVERSTATES TODAY'S BUSINESS The business has changed underneath the history. Field operating and transport cost rose from $11-14 per barrel in 2017-2019 to $22.30 in 2023 and $26.17 in 2025, and overhead from about $4 to $6.45 per barrel, while production fell from 14.8 million barrels in 2019 to 12.4 million. The company's realized price in 2025, $39.68 per barrel equivalent, sat almost exactly in the middle of its own eleven-year record (median $39.36; range $22.53 in 2020 to $61.89 in 2022). So 2025 was a normal price year, not a bad one, and at normal prices today's cost structure produced negative owner earnings of about $16 million. Three straight years of decline at similar prices (2023: $45 million, 2024: $7 million, 2025: -$16 million) confirm this is the run rate rather than one bad year. The first half of 2026 was better on price: revenue rose 24%. Field operating expense fell 7%, a genuine improvement, but overhead rose 38% (largely stock compensation), so total cash costs were essentially unchanged. LIABILITIES THAT MATTER W&T owes $350 million of 10.75% second-lien notes due 2029 (about $38 million a year of interest, already reflected in the cash flows above). It carries $573 million on its books for plugging and removing its wells and platforms; its reserve report puts that obligation at $333 million in present value at a 10% discount, and the book figure has risen every year since 2019 ($356 million then) despite steady spending. It held $151 million of cash at June 30, 2026. Surety companies that bond its decommissioning obligations demanded about $255 million of cash collateral in 2024. June 2025 settlements withdrew about $94 million of those demands and bar new demands from two sureties until after December 31, 2026, and a judge recommended denying $105 million of injunction requests, but the remaining dispute is unresolved. VALUATION We discount at 6% and put all risk into the cases. Because the asset base depletes, we value the cash its proved reserves can produce, less plugging costs, taxes, corporate overhead and repayment of the notes, plus cash on hand. The company's reserve report is priced at 2025 SEC prices, which match the middle of W&T's price history. Re-discounted at 6%, proved reserves are worth roughly $1.3 billion before plugging costs. Against that sit about $0.44 billion of plugging costs, about $0.15 billion of taxes, $0.5-0.6 billion of overhead over the remaining life, and about $0.4 billion for the notes. Each lasting $1 per barrel change in margin moves value by roughly $0.50 per share, which is why the cases are so far apart. Base case, about $0.10 per share: prices average the middle of the company's record (about $40 per barrel equivalent), unit costs stay at the 2025/early-2026 level, production follows the reserve report's decline, and future acquisitions are bought at fair prices, so they neither add nor destroy value. Proved reserves roughly cover plugging, overhead and debt. What is left for shareholders is small and comes mostly from the extra cash of 2026's higher prices. Bull case, about $2.40 per share: field operating cost per barrel returns to its 2023 level (about $3 per barrel lower; the 7% drop in the first half of 2026 is a start), realized prices hold at the 2023-2024 average of about $41.70, and the surety dispute ends without cash collateral. Bear case, about -$3.00 per share: prices over the next decade average about $35 per barrel equivalent (2015-2021 averaged about $33), unit costs rise another $2 per barrel as they did in each of the last two years, plugging estimates keep climbing, and the sureties force collateral that must be financed at double-digit rates. Fields would then reach the end of their economic lives sooner and plugging would come due earlier. The company would owe roughly $450 million more than its assets are worth, and shareholders would likely be wiped out or heavily diluted in a restructuring. That happened in part in 2016, when a debt exchange took the average share count from about 96 million to about 138 million the next year. WHAT WOULD MAKE THIS WRONG Oil and gas prices that stay well above the company's historical middle (each lasting $1 per barrel is worth about $0.50 per share), or a real, lasting reset of operating costs, would make the shares worth much more than the base case. A major hurricane, trouble refinancing the 2029 notes, or a large collateral call would push value toward the bear case. Hedges for 2026 cover only part of oil output (costless collars with $55-57 floors and a $64.53 swap on 2,000 barrels a day each). MARGIN-OF-SAFETY PRICE At normal prices the business is not currently earning its keep, so price alone is not enough. The margin-of-safety price applies only after two straight years of owner earnings above about $40 million at realized prices of $42 per barrel equivalent or less, together with a resolution of the surety dispute without significant cash collateral. If that happens, the bull case becomes the likely case, and the margin-of-safety price is about $1.00 per share. That is a wide discount, reflecting the debt, the plugging liability and the commodity exposure. NOT RECONCILED Capital spending and production volumes for the first half of 2026 were not available in the data we used, so we could not tell how much of 2026's revenue gain came from price and how much from volume.