Note 11 - Asset Retirement Obligation

12 Months Ended

Dec. 31, 2014

Asset Retirement Obligation Disclosure [Abstract]

Asset Retirement Obligation Disclosure [Text Block]

Note 11 — Asset Retirement Obligation

An obligation was recorded for the future plug and abandonment of the oil wells in the Corvina and Albacora fields in Block Z-1, the Pampa la Gallina well in Block XIX, the Caracol 1X well, the Cardo 2X well and the Piedra Candela 3X well in Block XXIII in accordance with the provisions of ASC Topic 410, “Asset Retirement and Environmental Obligations.” ASC 410-20 requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible, long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable. Under this method, when liabilities for dismantlement and abandonment costs, excluding salvage values, are initially recorded, the carrying amount of the related oil and natural gas properties is increased. The fair value of the ARO asset and liability is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. Accretion of the liability is recognized each period using the interest method of allocation, and the capitalized cost is depleted using the units of production method. Should either the estimated life or the estimated abandonment costs of a property change materially upon the Company’s periodic review, a new calculation is performed using the same methodology of taking the abandonment cost and inflating it forward to its abandonment date and then discounting it back to the present using the Company’s credit-adjusted-risk-free rate. The carrying value of the ARO is adjusted to the newly calculated value, with a corresponding offsetting adjustment to the asset retirement cost. Any negative adjustment in excess of asset retirement cost is reclassified to depreciation, depletion and amortization expense.

Activity related to the Company’s ARO for the year ended December 31, 2014 and December 31, 2013 is as follows:

	December 31, 2014		December 31, 2013
	(in thousands)
ARO as of the beginning of the period	$	1,564	$	2,708
Liabilities incurred during period		2,800		204
Accretion expense		133		238
Revisions in estimates during period		833		(1,586	)
ARO as of the end of the period	$	5,330	$	1,564

The 2014 and 2013 revisions in estimates are due to the change in estimates of future costs and the shift in timing of cash flows associated with expected payment of the ARO liability. As revisions to estimated costs both in 2014 and 2013, the present value of the liabilities was adjusted and, as a result, the Company adjusted both the liability and capitalized asset. Any negative adjustment in excess of asset retirement cost is reclassified to depreciation, depletion and amortization expense.