Note 6 - Property, Equipment and Construction in Progress

6 Months Ended

Jun. 30, 2013

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Note 6 — Property, Equipment and Construction in Progress

Below is a summary of property, equipment and construction in progress as of June 30, 2013 and December 31, 2012:

	June 30, 2013			December 31, 2012
	(in thousands)
Construction in progress:
Power plant and related equipment	$	78,198		$	73,958
Platforms and wells		15,158			15,611
Pipelines and processing facilities		3,015			11,784
Other		1,869			1,689
Producing properties (successful efforts method of accounting)		141,219			141,219
Producing equipment		36,770			27,758
Barge and related equipment		53,525			53,425
Office equipment, leasehold improvements and vehicles		9,309			9,249
Accumulated depletion, depreciation and amortization		(110,824	)		(96,136	)
Property, equipment and construction in progress, net	$	228,239		$	238,557

The Company follows the “successful efforts” method of accounting for its costs of acquisition, exploration and development of oil and gas properties. Under this method, oil and gas lease acquisition costs and intangible drilling costs associated with exploration efforts that result in the discovery of proved reserves and costs associated with development drilling, whether or not successful, are capitalized when incurred. Capitalized costs of producing crude oil and natural gas properties, along with support equipment and facilities, are amortized to expense by the unit-of-production method based on proved developed crude oil reserves on a field-by-field basis. Certain costs of exploratory wells are capitalized pending determinations that proved reserves have been found. Exploratory well costs continue to be capitalized if the well has found a sufficient quantity of reserves to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. If the determination is dependent upon the results of planned additional wells and required capital expenditures to produce the reserves found, the drilling costs will be capitalized as long as sufficient reserves have been found to justify completion of the exploratory well and the additional wells are underway or planned. All costs related to unsuccessful exploratory wells are expensed when such wells are determined to be non-productive.

In January 2013, the Company made a change in estimate in depreciating producing equipment. The Company changed to the unit-of-production method from a straight-line five-year life of calculating depreciation because it more accurately matches the costs of production equipment to the Company’s oil production. If the Company had continued using a straight-line five-year life, depreciation, depletion and amortization expense would have been $0.3 and $0.5 million higher, respectively, for the three and six months ended June 30, 2013.

The property, equipment and construction in progress, net amounts at June 30, 2013 and December 31, 2012 reflect the sale of a 49% participating interest in Block Z-1.

Exploratory well costs capitalized greater than one year after completion of drilling were $6.6 million as of June 30, 2013, and December 31, 2012. The exploratory well costs relate to the CX11-16X gas well that was drilled in 2007, which tested sufficient quantities of gas and is currently shut-in until such time as a market is established for selling the gas. The Company plans to use the gas from the CX11-16X well for its gas-to-power project. See Note-19, “Commitments and Contingencies” for further information on the gas-to-power project.

During the six months ended June 30, 2013, the Company incurred capital expenditures of approximately $5.4 million primarily associated with its development of gas-fired power generation of electricity for sale in Peru.

The capital expenditures added were approximately $4.2 million of costs to the power plant, which primarily consisted of capitalized interest of $3.9 million, and approximately $1.2 million related to other capitalized costs, which included capitalized interest of $1.1 million and $0.1 million of information technology investment.

The transfer of a 49% participating interest in Block Z-1 to Pacific Rubiales was effective on December 14, 2012. Pursuant to the carry agreement, Pacific Rubiales provided funding for capital expenditures for Block Z-1 of $20.8 million for the six months ended June 30, 2013. These capital expenditures were primarily related to the costs incurred in the design, fabrication, installation and pipeline connections related to the CX-15 platform of approximately $11.2 million and approximately $6.4 million related to the CX-15 development drilling program.

The following table is the amount of interest expense and depreciation expense capitalized to construction in progress for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Interest expense capitalized	$	2,372	$	3,760	$	4,991	$	6,732
Depreciation expense capitalized		-		3	$	-	$	5