Note 6 - Property, Equipment and Construction in Progress

6 Months Ended

Jun. 30, 2014

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, 2014 and December 31, 2013:

	June 30, 2014			December 31, 2013
	(in thousands)
Construction in progress:
Power plant and related equipment	$	88,064		$	82,928
Platforms and wells		26,258			12,505
Pipelines and processing facilities		874			846
Other		583			556
Producing properties (successful efforts method of accounting)		141,307			140,937
Producing equipment		40,209			40,209
Barge and related equipment		53,969			53,969
Office equipment, leasehold improvements and vehicles		9,155			9,122
Accumulated depletion, depreciation and amortization		(135,613	)		(123,319	)
Property, equipment and construction in progress, net	$	224,806		$	217,753

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.

Exploratory well costs capitalized greater than one year after completion of drilling were $6.6 million as of June 30, 2014, and December 31, 2013. 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-18, “Commitments and Contingencies” for further information on the gas-to-power project.

During the six months ended June 30, 2014, the Company incurred net capital expenditures of approximately $19.3 million associated with its development initiatives for the exploration and production of oil and natural gas reserves and the complementary development of gas-fired power generation of electricity for sale in Peru.

The capital expenditures added were approximately $13.3 million related to the exploration of Block XXIII, which included capitalized interest of $0.8 million, approximately $5.1 million of costs related to the power plant, which consisted of capitalized interest of $4.7 million, and other capital expenditures incurred of approximately $0.9 million, which included capitalized interest of $0.5 million.

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 100% of capital expenditures for Block Z-1 of $69.9 million for the six months ended June 30, 2014. These gross capital expenditures include approximately $32.1 million related to the CX-15 development drilling program, approximately $31.0 million related to the development drilling program in Albacora and expenditures related to the CX-15 platform of approximately $0.9 million.

The following table is the amount of interest expense capitalized to construction in progress for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
	(in thousands)
Interest expense capitalized	$	3,080	$	2,372	$	5,950	$	4,991