Note 8 - Asset Retirement Obligations

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Asset Retirement Obligation Disclosure [Text Block]

8. ASSET RETIREMENT OBLIGATIONS

The Company has asset retirement obligations (“ARO”) associated with the future plugging and abandonment of proved properties. Initially, the fair value of a liability for an ARO is recorded in the period in which the ARO is incurred with a corresponding increase in the carrying amount of the related asset. The liability is accreted to its present value each period and the capitalized cost is depleted over the life of the related asset. If the liability is settled for an amount other than the recorded amount, an adjustment to the full-cost pool is recognized. The Company had no assets that are restricted for the purpose of settling ARO.

The Company recorded $9.6 million of ARO related to the assets acquired in the January 5, 2022 acquisition, $0.5 million of ARO related to the assets acquired in the May 3, 2022 acquisition of Liberty County, Texas assets and $1.7 million of ARO related to the assets acquired in the July 27, 2022 acquisition. See “Note 2- Acquisitions and Divestitures”. During the fourth quarter 2023 the Company sold non-operated assets, and as such, the Company reduced its ARO by $0.5 million related to the sold assets. See "Note 2- Acquisitions and Divestitures".

In the fair value calculation for the ARO there are numerous assumptions and judgments including the ultimate retirement cost, inflation factors, credit-adjusted risk-free discount rates, timing of retirement and changes in legal, regulatory, environmental, and political environments. To the extent future revisions to assumptions and judgments impact the present value of the existing ARO, a corresponding adjustment is made to the oil and natural gas property balance.

The following is a reconciliation of the changes in the Company’s liabilities for asset retirement obligations for the years ended December 31, 2023 and 2022:

	Year Ended December 31,
	2023			2022
	(in thousands)
Balance, beginning of year	$	15,442		$	1,461
Acquired		11			11,811
Cost and life revisions		2,494			1,825
Plugged		(215	)		(407	)
Sold		(458	)		(189	)
Accretion		1,216			941
Balance, end of year	$	18,490		$	15,442
Asset retirement obligations - current	$	1,273		$	668
Asset retirement obligations - noncurrent		17,217			14,774
Balance, end of year	$	18,490		$	15,442