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 in Item 1 of this Quarterly Report on Form 10-Q. 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 of 1933 and Section 21E of the 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, 2008 and may be discussed or updated from time to time in subsequent reports filed with the SEC. 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 consolidated subsidiaries.

Overview

W&T is an independent oil and natural gas producer focused in the Gulf of Mexico. W&T has grown through acquisitions, exploitation and exploration and currently holds working interests in approximately 82 producing fields in federal and state waters. The majority of our daily production is derived from wells we operate. The number of fields in which we have a working interest has decreased since the end of 2008 due to the sale of various non-core properties and the expiration of leases. On October 29, 2009, we closed on the sale of 36 non-core oil and natural gas fields to a third party producer, subject to the terms of the purchase and sale agreement. The sale was effective August 1, 2009. Production from these fields represented approximately 9% of our total October production.

Our financial condition, cash flow and results of operations are significantly affected by the volume of our oil and natural gas production and the price that we receive for such production. Our production volume for September was comprised of approximately 47% oil and 53% natural gas, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. During the nine months ended September 30, 2009, our combined total production of oil and natural gas was approximately 12.0% lower compared to the same period in 2008.

Oil and natural gas prices have been and are expected to remain volatile. During the second half of 2008, the prices of oil and natural gas decreased significantly in response to turmoil in the financial markets and a global economic recession. While oil prices have increased considerably since the end of 2008, natural gas prices have continued to be weak, especially compared to our costs per Mcfe, in the wake of decreased demand related to current economic conditions, increased supply and increased levels of natural gas in storage. The price of oil was approximately $67 per barrel at the end of September 2009, representing an increase of 63% from approximately $41 per barrel at the end of 2008. The price of natural gas was approximately $3.30 per Mcf at the end of September 2009, representing a decrease of 42% from approximately $5.70 per Mcf at the end of 2008. During the nine months ended September 30, 2009, the average realized sales prices of our oil and natural gas were $50.82 per barrel and $3.98 per Mcf, respectively. Although our average realized sales prices for oil and natural gas were lower in 2009 compared to 2008, the costs of goods and services that we consume in our normal operations remained proportionately high in the first half of 2009 as a result of commitments in 2008, which dramatically reduced our cash flows. Continued lower prices will negatively impact our future oil and natural gas revenues, earnings and liquidity. Declines in oil and natural gas prices after September 30, 2009 could result in ceiling test impairments of the carrying value of our oil and natural gas properties, issues with financial ratio compliance, and a reduction of the borrowing base associated with our credit agreement. Such declines may limit the willingness of financial institutions and investors to provide borrowings or capital to us and others in the oil and natural gas industry.

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):



                                                             Three Months Ended                                         Nine Months Ended
                                                               September 30,                                              September 30,
                                              2009           2008           Change          %             2009            2008         Change          %
                                                                         (In thousands, except percentages and per share data)
Financial:
Revenues:
Oil                                         $ 118,548      $ 173,970      $  (55,422 )     (31.9 )%    $  270,675      $   641,556   $ (370,881 )     (57.8 )%
Natural gas                                    43,222        115,743         (72,521 )     (62.7 )%       158,938          465,509     (306,571 )     (65.9 )%
Other (1)                                       5,272             80           5,192          NM            5,283              238        5,045          NM

Total revenues                                167,042        289,793        (122,751 )     (42.4 )%       434,896        1,107,303     (672,407 )     (60.7 )%
Operating costs and expenses:
Lease operating expenses (2)                   53,820         52,403           1,417         2.7 %        158,131          156,554        1,577         1.0 %
Production taxes                                  174          2,671          (2,497 )     (93.5 )%         1,464            8,033       (6,569 )     (81.8 )%
Gathering and transportation                    4,050          3,536             514        14.5 %         10,400           14,920       (4,520 )     (30.3 )%
Depreciation, depletion, amortization and
accretion                                      88,073        113,872         (25,799 )     (22.7 )%       264,203          413,195     (148,992 )     (36.1 )%
Impairment of oil and natural gas
properties (3)                                     -              -               -           -           205,030               -       205,030          -
General and administrative expenses             9,758         10,657            (899 )      (8.4 )%        31,925           34,294       (2,369 )      (6.9 )%
Derivative loss (gain)                          3,845        (15,174 )        19,019      (125.3 )%         4,697           20,897      (16,200 )     (77.5 )%

Total costs and expenses                      159,720        167,965          (8,245 )      (4.9 )%       675,850          647,893       27,957         4.3 %

Operating income (loss)                         7,322        121,828        (114,506 )     (94.0 )%      (240,954 )        459,410     (700,364 )    (152.4 )%
Interest expense, net of amounts
capitalized                                     9,222          8,766             456         5.2 %         29,967           25,170        4,797        19.1 %
Loss on extinguishment of debt                     -              -               -           -             2,926               -         2,926          -
Other income                                       39          4,140          (4,101 )     (99.1 )%           762            9,271       (8,509 )     (91.8 )%

Income (loss) before income tax expense
(benefit)                                      (1,861 )      117,202        (119,063 )    (101.6 )%      (273,085 )        443,511     (716,596 )    (161.6 )%
Income tax expense (benefit)                     (539 )       39,021         (39,560 )    (101.4 )%       (35,052 )        150,914     (185,966 )    (123.2 )%

Net income (loss)                           $  (1,322 )    $  78,181      $  (79,503 )    (101.7 )%    $ (238,033 )    $   292,597   $ (530,630 )    (181.4 )%

Basic and diluted earnings (loss) per
common share (4)                            $   (0.02 )    $    1.02      $    (1.04 )    (102.0 )%    $    (3.17 )    $      3.83   $    (7.00 )    (182.8 )%

                                                             Three Months Ended                                         Nine Months Ended
                                                               September 30,                                              September 30,
                                              2009           2008           Change          %             2009            2008         Change          %
Operating:
Net sales:
Natural gas (Bcf)                                14.0           10.9             3.1        28.4 %           39.9             45.6         (5.7 )     (12.5 )%
Oil (MMBbls)                                      1.9            1.5             0.4        26.7 %            5.3              6.0         (0.7 )     (11.7 )%
Total natural gas and oil (Bcfe) (5)             25.7           19.9             5.8        29.1 %           71.9             81.7         (9.8 )     (12.0 )%

Average daily equivalent sales (MMcfe/d)        278.9          216.1            62.8        29.1 %          263.3            298.0        (34.7 )     (11.6 )%

Average realized sales prices:
Natural gas ($/Mcf)                         $    3.08      $   10.60      $    (7.52 )     (70.9 )%    $     3.98      $     10.21   $    (6.23 )     (61.0 )%
Oil ($/Bbl)                                     61.09         116.54          (55.45 )     (47.6 )%         50.82           106.71       (55.89 )     (52.4 )%
Natural gas equivalent ($/Mcfe)                  6.30          14.57           (8.27 )     (56.8 )%          5.98            13.56        (7.58 )     (55.9 )%

Average per Mcfe ($/Mcfe):
Lease operating expenses (2)                $    2.10      $    2.64      $    (0.54 )     (20.5 )%    $     2.20      $      1.92   $     0.28        14.6 %
Gathering and transportation costs and
production taxes                                 0.16           0.31           (0.15 )     (48.4 )%          0.17             0.28        (0.11 )     (39.3 )%
Depreciation, depletion, amortization and
accretion                                        3.43           5.73           (2.30 )     (40.1 )%          3.68             5.06        (1.38 )     (27.3 )%
General and administrative expenses              0.38           0.54           (0.16 )     (29.6 )%          0.44             0.42         0.02         4.8 %

                                            $    6.07      $    9.22      $    (3.15 )     (34.2 )%    $     6.49      $      7.68   $    (1.19 )     (15.5 )%


Total number of wells drilled (gross)               1              6              (5 )     (83.3 )%            11               20           (9 )     (45.0 )%
Total number of productive wells drilled
(gross)                                             1              4              (3 )     (75.0 )%             8               16           (8 )     (50.0 )%

(1) Percentage change not meaningful ("NM").

(2) Included in lease operating expenses for the three and nine months ended September 30, 2009 are hurricane remediation costs of $4.0 million and $19.3 million, respectively, related to Hurricanes Ike and Gustav that were either not yet approved by our insurance underwriters' adjuster or were not covered by insurance. Included in lease operating expenses for the three and nine months ended September 30, 2008 are $1.3 million of remediation costs related to Hurricane Ike and $0.5 million of remediation costs related to Hurricane Gustav that were not covered by insurance.

(4) Basic and diluted earnings per share for the three and nine months ended September 30, 2008 have been calculated and restated retrospectively in accordance with certain amendments to the Earnings Per Share Topic of the Codification which were adopted by the Company effective January 1, 2009.

(5) One billion cubic feet equivalent (Bcfe), one million cubic feet equivalent (MMcfe) and one thousand cubic feet equivalent (Mcfe) are determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids (totals may not add due to rounding).

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Revenues. Revenues decreased $122.7 million to $167.0 million for the three months ended September 30, 2009 as compared to the same period in 2008. Oil revenues decreased $55.4 million, natural gas revenues decreased $72.5 million and other revenues increased $5.2 million. The oil revenue decrease was primarily attributable to a 47.6% decrease in the average realized oil price to $61.09 per barrel for the three months ended September 30, 2009 from $116.54 per barrel for the same period in 2008, partially offset by a 26.7% increase in sales volumes. The natural gas revenue decrease resulted from a 70.9% decrease in the average realized natural gas price to $3.08 per Mcf in the 2009 period from $10.60 per Mcf in the 2008 period, partially offset by a 28.4% increase in sales volumes. The sales volume increases for oil and natural gas are primarily attributable to resumed production from properties that underwent hurricane repairs, partially offset by reductions from the sale of one of our fields in Louisiana state waters and natural reservoir declines in 2009. Production of approximately 9 MMcfe per day is currently shut-in due to hurricane damage and we expect the majority of this production will be reestablished in the first half of 2010. The increase in other revenues primarily relates to allowable reductions of cash payments for royalties owed to the Minerals Management Service ("MMS") for transportation of their deepwater production through our subsea pipeline systems.

Lease operating expenses. Lease operating expenses, which include base lease operating expenses, insurance costs, workovers and maintenance on our facilities, decreased to $2.10 per Mcfe in the third quarter of 2009 from $2.64 per Mcfe in the third quarter of 2008. Higher production volumes during the 2009 period resulted in a decrease in lease operating expenses per Mcfe of $0.60, which was partially offset by an increase of $0.06 per Mcfe caused by higher lease operating expenses. On a nominal basis, lease operating expenses increased $1.4 million to $53.8 million in the third quarter of 2009, compared to the third quarter of 2008. The increase of $1.4 million is attributable to increases in insurance costs and workovers of $3.1 million and $3.5 million, respectively, offset by decreases in base lease operating expenses of $3.0 million and facility expenditures of $4.4 million, respectively. Also included in lease operating expenses for the 2009 period are $4.0 million of hurricane remediation costs related to Hurricanes Ike and Gustav that were either not yet approved by our insurance underwriters' adjuster or were not covered by insurance. Included in lease operating expenses for the three and nine months ended September 30, 2008 are $1.3 million of remediation costs related to Hurricane Ike and $0.5 million of remediation costs related to Hurricane Gustav. Lease operating expenses will be offset in future periods to the extent that these costs are recovered under our insurance policies. The decrease in base lease operating expenses primarily reflects lower overall service and supply costs and the sale of one of our fields in Louisiana state waters in 2009. The increase in workover costs is related to numerous projects undertaken in the third quarter of 2009 to stimulate and restore production at various wells. The decrease in facility expenditures relates to several projects that were completed in 2008 that did not recur in 2009.

Production taxes. Production taxes decreased to $0.2 million for the three months ended September 30, 2009 from $2.7 million for the same period in 2008 primarily due to the sale of one of our fields in Louisiana state waters, lower production from fields in state waters of Texas and Louisiana and lower realized prices on sales of our oil and natural gas in 2009. Most of our production is from federal waters where there are no production taxes.

Gathering and transportation costs. Gathering and transportation costs increased to $4.1 million for the three months ended September 30, 2009 from $3.5 million for the same period in 2008 primarily due to lower production volumes in the 2008 period resulting from production shut-ins caused by Hurricanes Ike and Gustav, partially offset by a reduction in costs attributable to the sale of one of our fields in Louisiana state waters in 2009.

Depreciation, depletion, amortization and accretion. Depreciation, depletion, amortization and accretion ("DD&A") decreased to $88.1 million for the quarter ended September 30, 2009 from $113.9 million for the same period in 2008. DD&A decreased due to a lower depreciable base (resulting from ceiling test impairments of $1.2 billion and $205.0 million recognized at the end of 2008 and the first quarter of 2009, respectively, and a net reduction of our asset retirement obligations of $79.3 million from the sale of certain assets and revisions to our estimates), partially offset by higher volumes of oil and natural gas produced and lower oil and natural gas reserves, compared to 2008. On a per Mcfe basis, DD&A was $3.43 for the quarter ended September 30, 2009, compared to $5.73 for the quarter ended September 30, 2008.

General and administrative expenses. General and administrative expenses ("G&A") decreased to $9.8 million for the three months ended September 30, 2009 from $10.7 million for the same period in 2008, primarily due to lower incentive compensation and travel expenses, partially offset by reduced overhead credits billed to joint operators. On a per Mcfe basis, G&A was $0.38 per Mcfe for the three months ended September 30, 2009, compared to $0.54 per Mcfe for the same period in 2008.

Derivative loss/gain. For the quarter ended September 30, 2009, our derivative loss of $3.8 million included an unrealized loss of $3.3 million related to our commodity derivative contracts. Also included in the 2009 period is a realized loss of $1.7 million related to our interest rate swap offset by an unrealized gain of $1.2 million related to our interest rate swap. For the quarter ended September 30, 2008, our derivative gain of $15.2 million consisted of an unrealized gain of $27.6 million related to commodity derivatives offset by a realized loss of $11.2 million related to such derivatives. Also included in the 2008 period are realized and unrealized losses of $0.9 million and $0.3 million, respectively, related to our interest rate swap. For additional details about our derivatives, refer to Item 1 Financial Statements - Note 7 - Derivative Financial Instruments.

Interest expense. Interest expense incurred decreased to $11.1 million for the quarter ended September 30, 2009 from $13.4 million for the quarter ended September 30, 2008 primarily due to lower interest rates and lower debt outstanding during the 2009 period. During the 2009 and 2008 periods, $1.9 million and $4.6 million, respectively, of interest expense was capitalized to unevaluated oil and natural gas properties.

Other income. Other income, consisting of interest income, decreased to $39 thousand for the quarter ended September 30, 2009 from $4.1 million for the same period in 2008 due to lower average daily cash balances and a reduction in market interest rates received on invested cash.

Income tax expense/benefit. An income tax benefit of $0.5 million was recorded during the three months ended September 30, 2009, compared to income tax expense of $39.0 million for the same period in 2008. The income tax benefit in 2009 resulted from a net operating loss for tax purposes, only a portion of which is expected to be available to be carried back to 2007, which is the only open tax year that is currently available. Our effective tax rate for the quarter ended September 30, 2009 was approximately 29.0% and primarily reflects adjustments for prior year taxes and other discrete items. Our effective tax rate for the three months ended September 30, 2008 was approximately 33% and reflected the anticipated utilization of the deduction attributable to qualified domestic production activities under Section 199 of the Internal Revenue Code.

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Revenues. Revenues decreased $672.4 million to $434.9 million for the nine months ended September 30, 2009 as compared to the same period in 2008. Oil revenues decreased $370.9 million, natural gas revenues decreased $306.5 million and other revenues increased $5.0 million. The oil revenue decrease was primarily attributable to a 52.4% decrease in the average realized oil price to $50.82 per barrel for the nine months ended September 30, 2009 from $106.71 per barrel for the same period in 2008, as well as an 11.7% decrease in sales volumes. The natural gas revenue decrease resulted from a 61.0% decrease in the average realized natural gas price to $3.98 per Mcf in the 2009 period from $10.21 per Mcf in the 2008 period, as well as a 12.5% decrease in sales volumes. The sales volume decreases for oil and natural gas are primarily attributable to the deferral of production caused by Hurricanes Gustav and Ike in 2008, the sale of one of our fields in Louisiana state waters and natural reservoir declines. During the first nine months of 2009,

production of approximately 39 MMcfe per day, on average, remained shut-in due to hurricane damage. Production of approximately 9 MMcfe per day is currently shut-in due to hurricane damage and we expect the majority of this production will be reestablished in the first half of 2010. The increase in other revenues primarily relates to allowable reductions of cash payments for royalties owed to the MMS for transportation of their deepwater production through our subsea pipeline systems.

Lease operating expenses. Lease operating expenses increased to $2.20 per Mcfe for the nine months ended September 30, 2009 from $1.92 per Mcfe in the same period in 2008. Lower production volumes without a corresponding decrease in operating expenses during the 2009 period resulted in the increase in lease operating expenses per Mcfe. On a nominal basis, lease operating expenses increased $1.6 million to $158.1 million during the nine months ended September 30, 2009, compared to the same period in 2008. The increase of $1.6 million is attributable to increases in insurance costs and workovers of $1.1 million and $0.1 million, respectively, offset by decreases in base lease operating expenses of $10.2 million and facility expenditures of $6.9 million, respectively. Also included in lease operating expenses for the 2009 period are $19.3 million of hurricane remediation costs related to Hurricanes Ike and Gustav that were either not yet approved by our insurance underwriters' adjuster or were not covered by insurance. Included in lease operating expenses for the three and nine months ended September 30, 2008 are $1.3 million of remediation costs related to Hurricane Ike and $0.5 million of remediation costs related to Hurricane Gustav. Lease operating expenses will be offset in future periods to the extent that these costs are recovered under our insurance policies. The decrease in base lease operating expenses primarily reflects lower overall service and supply costs and the sale of one of our fields in Louisiana state waters in 2009. The decrease in facility expenditures relates to several projects that were completed in 2008 that did not recur in 2009.

Production taxes. Production taxes decreased to $1.5 million for the nine months ended September 30, 2009 from $8.0 million for the same period in 2008 primarily due to the sale of one of our fields in Louisiana state waters, lower production from fields in state waters of Texas and Louisiana and lower realized prices on sales of our oil and natural gas in 2009. Most of our production is from federal waters where there are no production taxes.

Gathering and transportation costs. Gathering and transportation costs decreased to $10.4 million for the nine months ended September 30, 2009 from $14.9 million for the same period in 2008 primarily due to lower production volumes of oil and natural gas and the sale of one of our fields in Louisiana state waters in 2009.

Depreciation, depletion, amortization and accretion. DD&A decreased to $264.2 million for the nine months ended September 30, 2009 from $413.2 million for the same period in 2008. DD&A decreased due to lower volumes of oil and natural gas produced and a lower depreciable base (resulting from ceiling test impairments of $1.2 billion and $205.0 million recognized at the end of 2008 and the first quarter of 2009, respectively, and a net reduction of our asset retirement obligations of $79.3 million from the sale of certain assets and revisions to our estimates), partially offset by lower oil and natural gas reserves, compared to 2008. On a per Mcfe basis, DD&A was $3.68 for the nine months ended September 30, 2009, compared to $5.06 for the same period in 2008.

Impairment of oil and natural gas properties. At March 31, 2009, we recorded a ceiling test impairment of our oil and natural gas properties of $205.0 million through application of the full cost ceiling limitation as prescribed by the SEC, primarily as a result of lower natural gas prices at March 31, 2009, as compared to December 31, 2008. We did not have a ceiling test impairment during the nine months ended September 30, 2008.

General and administrative expenses. G&A decreased to $31.9 million for the nine months ended September 30, 2009 from $34.3 million for the same period in 2008, primarily due to lower incentive compensation and travel expenses, partially offset by higher fees for professional and contract services and reduced overhead credits billed to joint operators. On a per Mcfe basis, G&A was $0.44 per Mcfe for the nine months ended September 30, 2009, compared to $0.42 per Mcfe for the same period in 2008.

Derivative loss. For the nine months ended September 30, 2009, our derivative loss of $4.7 million included an unrealized loss of $3.3 million related to our commodity derivative contracts. Also included in the 2009 period is a realized loss of $4.6 million related to our interest rate swap offset by an unrealized . . .