It seems that the effects of the Gulf oil spill have already worn off for W&T Offshore (NYSE: WTI). Or at least its first-quarter earnings suggest that. The company has made substantial progress despite recording a drop in net income, so perhaps it's time to take a deeper look at the company.

The numbers
With the company acquiring new assets in the West Texas Permian Basin, estimated proved reserves are approximately 27 million barrel equivalents (Mmboe), which is beginning to sound pretty significant for a midsized player. Revenues showed a gain of around 24% to $210.9 million compared with $169.6 million in the year-ago quarter, mostly thanks to higher crude oil prices. Quarter-over-quarter revenues also showed a 13% increase.

But, higher energy prices were not the only reason behind this show of strength. W&T has managed to ramp up production by 14% to 22.7 billion cubic feet equivalent (Bcfe) compared with the corresponding quarter in 2010. Increasing operational output is fundamental to any E&P company's growth, and this development definitely augurs well for Foolish investors.

Should we worry?
Unlike the giants, for small-cap oil companies, exploration is a risky business. Hence, the need to hedge arises, and growing expenses because of hedging activities are not really surprising. The fall in net income -- to $18.6 million from $42.3 million a year ago -- was largely because of expense incurred on derivative contracts worth $23.8 million, of which $21.6 million was unrealized.

This interests me as it prompts me to check the cash income during the corresponding periods. Adjusted EBITDA actually rose to $133.3 million from $119.8 million, showing that the company has managed to effectively increase its cash inflow even though the accounting measure in question (net income) has not revealed that. Quarter-over-quarter cash and cash equivalents rose from $28.6 million to $58.3 million.

Foolish takeaway
With the acquisitions, things look bright for this $2 billion company. Also, with one of the significant fields -- the Main Pass 108 field -- in the Gulf of Mexico resuming production following the spill, this is more good news. An Asset Purchase Agreement with Shell Offshore, a subsidiary of Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B), worth $138 million should also bear fruit. In all, Foolish investors have much to look forward to.

Isac Simon does not own shares of any of the companies mentioned in this article. W&T Offshore is a Motley Fool Hidden Gems selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.