Note 8 - Property, Equipment and Construction in Progress

12 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Note 8— Property, Equipment and Construction in Progress

Below is a summary of property, equipment and construction in progress as of December 31, 2014 and 2013:

	December 31, 2014			December 31, 2013
	(in thousands)
Construction in progress:
Power plant and related equipment	$	32,801		$	82,928
Platforms and wells		30,363			12,505
Pipelines and processing facilities		892			846
Other		216			556
Producing properties (successful efforts method of accounting)		147,071			140,937
Producing equipment		40,315			40,209
Barge and related equipment		34,289			53,969
Office equipment, leasehold improvements and vehicles		9,131			9,122
Accumulated depletion, depreciation and amortization		(129,107	)		(123,319	)
Property, equipment and construction in progress, net	$	165,971		$	217,753

Suspended Exploratory Well Costs

Exploratory well costs capitalized greater than one year after completion of drilling were $6.6 million as of December 31, 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-22, “Commitments and Contingencies” for further information on the gas-to-power project.

Capital Expenditures

During the year ended December 31, 2014, the Company incurred net capital expenditures of approximately $33.1 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.

Approximately $2.4 million was transferred from construction in progress to producing properties for the year ended December 31, 2014.

The capital expenditures added were approximately $18.8 million related to the exploration of Block XXIII, which included capitalized interest of $1.6 million, approximately $7.7 million of costs related to the power plant, which consisted of capitalized interest of $7.1 million, and other capital expenditures incurred of approximately $6.6 million (which includes $1.8 million related to Block Z-1), 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. Pacific Rubiales provided funding for capital expenditures for Block Z-1 of $177.9 million for the year ended December 31, 2014. The gross capital expenditures of Block Z-1 include approximately $63.5 million related to the CX-15 development drilling program, approximately $61.0 million related to the development drilling program in Albacora and expenditures related to the Delfin platform of approximately $18.4 million, the Piedra Redonda platform of approximately $14.8 million and the CX-15 platform of approximately $2.8 million.

During the year ended December 31, 2013, the Company incurred net capital expenditures of approximately $13.5 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.

Approximately $13.5 million was transferred from construction in progress to producing properties for the year ended December 31, 2013.

During the year ended December 31, 2013, the Company incurred capital expenditures of approximately $8.8 million of costs related to the power plant, which consisted of capitalized interest of $8.0 million, approximately $2.4 million related to the Block XXIII exploratory drilling program, and capital expenditures incurred related to marine, information technology and other projects of $2.3 million, which included capitalized interest of $1.9 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 $80.6 million for the year ended December 31, 2013. These gross capital expenditures includes approximately $38.6 million related to the CX-15 development drilling program, $17.9 million related to the development drilling program at Albacora, the costs incurred in the design, fabrication, installation and pipeline connections related to the CX-15 platform of approximately $14.1 million and $4.2 million associated with the Corvina offshore Lease Automatic Custody Transfer unit.

Asset Impairments

In connection with the Company’s periodic evaluation of assets for recoverability, the Company revised its view of the Power plant and related equipment, due to recent developments that may change the extent or manner in which the asset may be used. Using a probability weighted average income approach of different courses of action available to the Company, the Company compared the undiscounted cash flows to the carrying value of the assets. The fair value of the assets was determined using discounted cash flow models using the same methodology. As a result, the assets are considered to be impaired, and the Company measured the impairment loss as the difference between the carrying amount and the fair value of the assets. The Company recorded an impairment loss related to Power plant and related equipment $58.0 million in 2014. See Note-15, “Fair Value Measurements and Disclosures” for further information.

In January 2013, the Company made a change in its method of estimating the depreciation of producing equipment. The Company changed to the unit-of-production method from a straight-line five-year life method 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 method, depreciation, depletion and amortization expense would have been $1.4 million higher for the year ended December 31, 2013.

The following table shows the amount of interest expense capitalized to construction in progress for the year ended December 31, 2014 and 2013, respectively:

	Year Ended December 31,
	2014		2013
	(in thousands)
Interest expense capitalized	$	9,250	$	9,858