Note 12 - Debt Obligations

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Debt and Capital Leases Disclosures [Text Block]

Note 12—Debt Obligations

At December 31, 2014 and 2013, debt obligations consisted of the following:

	December 31, 2014		December 31, 2013
	(in thousands)
Convertible Notes, 8.5%, due October 2017, net of discount of ($13.9) million at December 31, 2014 and ($18.3) million at December 31, 2013	$	154,839	$	125,416
Convertible Notes, 6.5%, due March 2015, net of discount of ($0.4) million at December 31, 2014 and ($4.4) million at December 31, 2013		59,473		81,523
		214,312		206,939
Less: Current maturity of long-term debt		214,312		-
Long-term debt, net	$	-	$	206,939

The following is a summary of scheduled debt maturities by year (in thousands):

2015	$	228,600
2016		-
2017		-
2018		-
2019		-
Thereafter		-
Total scheduled debt maturities	$	228,600

As a result of the Company’s decision to not pay the principal and interest on the 2015 Convertible Notes when due on March 1, 2015 and after exercise of a grace period until March 10, 2015, a cross default provision contained on the 2017 Convertible Notes was triggered. In addition, the Company voluntarily filed for reorganization under Chapter 11 of the Bankruptcy Code on March 9, 2015, which was also an event of default under both the 2015 Convertible Notes and the 2017 Convertible Notes. Therefore all of the Company’s debt and related interest is considered due and callable once the default provisions were triggered and, all debt has been classified as current at December 31, 2014.

Convertible Notes due 2017

During the third quarter of 2013, the Company closed on an offering for an aggregate principal amount of $143.8 million of convertible notes due 2017, which includes the exercise of the underwriter’s option to purchase an additional $18.8 million of the 2017 Convertible Notes in addition to the original offering of $125.0 million. The 2017 Convertible Notes are the Company’s general senior unsecured obligations and rank equally in right of payment with all of the Company’s other existing and future senior unsecured indebtedness and rank senior in the right of payment to all of our existing and future subordinated debt.  The 2017 Convertible Notes are subordinate to any secured indebtedness the Company may have to the extent of the value of the assets collateralizing such indebtedness.  The 2017 Convertible Notes are not guaranteed by the Company’s subsidiaries. In April 2014, $26.0 million of the aggregate principal amount of the 2015 Convertible Notes were exchanged for an additional $25.0 million aggregate principal amount of 2017 Convertible Notes in a private transaction. As a result, the Company had $168.7 million principal amount of 2017 Convertible Notes outstanding at December 31, 2014.

The interest rate on the 2017 Convertible Notes is 8.50% per year with interest payments due on April 1st and October 1st of each year.  The 2017 Convertible Notes mature with repayment of the $168.7 million principal amount (assuming no conversion) on October 1, 2017 (the “2017 Maturity Date”).

The conversion rate is 249.5866 shares per $1,000 principal amount (equal to an initial conversion price of approximately $4.0066 per share of common stock). Upon conversion, if conversion is elected by the noteholders, the Company must deliver, at its option, either (1) a number of shares of its common stock determined as set forth in the Indenture dated September 24, 2013 (the “2013 Indenture”), (2) cash, or (3) a combination of cash and shares of its common stock.

Holders may convert their 2017 Convertible Notes at their option at any time prior to the close of business on the second business day immediately preceding the 2017 Maturity Date under any of the following circumstances:

(1) during any fiscal quarter (and only during such fiscal quarter) commencing after October 1, 2013, if the last reported sale price of the Company’s common stock is greater than or equal to 130% of the conversion price of the 2017 Convertible Notes for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter;

(2) prior to July 1, 2017, during the five business-day period after any ten consecutive trading-day period in which the trading price of $1,000 principal amount of the 2017 Convertible Notes for each trading day in the measurement period was less than 97% of the product of the last reported sale price of the Company’s common stock and the conversion rate on such trading day; or

(3) upon the occurrence of one of a specified number of corporate transactions.

Holders may also convert the 2017 Convertible Notes at their option at any time beginning on July 1, 2017, and ending at the close of business on the second business day immediately preceding the 2017 Maturity Date or may hold the 2017 Convertible Notes to maturity and be paid their outstanding principal in cash.

The Company may not redeem the 2017 Convertible Notes prior to the 2017 Maturity Date.

The 2013 Indenture for the 2017 Convertible Notes contains customary terms and covenants and events of default, the occurrence and continuation of which could result in the acceleration of amounts due under the 2017 Convertible Notes including (i) an event of default if the Company defaults in the payment when due, after the expiration of any applicable grace period, of indebtedness for money borrowed (including the 2015 Convertible Notes) in the aggregate principal amount then outstanding of $25 million or more, permitting the trustee or the holder of at least 25% in the aggregate principal amount of the outstanding 2017 Convertible Notes to declare the full amount of the principal and interest due thereunder immediately due and payable, and (ii) an event of default if the Company commences a voluntary case under any bankruptcy law, insolvency law or other similar law, whereby the full amount of the principal and interest due thereunder automatically and immediately becomes due and payable. See “—Convertible Notes due 2015” below.

Net proceeds from the sale of the 2017 Convertible Notes, after deducting the discounts and commissions and any offering expenses payable by the Company, were approximately $124.5 million.  The 2017 Convertible Notes were issued with a 10% discount or $14.4 million. The underwriter received commissions of approximately $4.3 million in connection with the sale and the Company incurred $0.6 million of direct expenses in connection with the offering.  The Company used the net proceeds for general corporate purposes, including funding its exploration and production efforts, other projects and to reduce or refinance its outstanding debt.

The Company accounts for the 2017 Convertible Notes in accordance with ASC Topic 470, “Debt”, as it pertains to accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). Under the accounting guidance, convertible debt instruments that may be settled entirely or partially in cash upon conversion are required to be separated into liability and equity components, with the liability component amount determined in a manner that reflects the issuer’s non-convertible debt borrowing rate. The value assigned to the liability component is determined by measuring the fair value of a similar liability that does not have an equity conversion feature. The value assigned to the equity component is determined by deducting the fair value of the liability component from the initial proceeds. The excess of the principal amount of the liability component over its carrying amount (the non-cash discount) is amortized to interest cost using the effective interest method over the term of the 2017 Convertible Notes. In addition, transaction costs incurred that directly relate to the issuance of convertible debt instruments must be allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively.

The Company estimated its non-convertible borrowing rate at the date of issuance of the 2017 Convertible Notes to be 12.9%. The 12.9% non-convertible borrowing rate represented the borrowing rate of similar companies with the same credit quality as the Company and was obtained through a quote from the underwriter. Using the income method and discounting the principal and interest payments of the 2017 Convertible Notes using the 12.9% non-convertible borrowing rate, the Company estimated the fair value of the $143.8 million 2017 Convertible Notes to be approximately $124.5 million, with the discount being approximately $19.3 million. The discount of $19.3 million includes the 10% discount of $14.4 million and the value of the equity component of $4.9 million. The discount is being amortized as non-cash interest expense over the life of the 2017 Convertible Notes using the effective interest method. In addition, the Company allocated approximately $2.3 million of the $4.9 million of fees and commissions as debt issue costs that are being amortized as non-cash interest expense over the life of the notes using the effective interest method. Approximately $0.1 million of fees and commissions were treated as transaction costs associated with the equity component and the remaining $2.5 million was expensed to other expense under the caption, “Other income (expense)” in the third quarter of 2013.

As a result of the exchange during the second quarter of 2014, the Company estimated its non-convertible borrowing rate at the date of issuance of the $25.0 million 2017 Convertible Notes to be 7.89%. The 7.89% non-convertible borrowing rate represented the borrowing rate of similar companies with the same credit quality as the Company and was obtained through a quote from a financial advisor. Using the income method and discounting the principal and interest payments of the 2017 Convertible Notes with the 7.89% non-convertible borrowing rate, the Company estimated the fair value of the $25.0 million 2017 Convertible Notes to be approximately $25.4 million, with the premium being approximately $0.4 million. The value of the equity component was estimated at $0.5 million. The premium is being amortized as non-cash interest expense over the life of the 2017 Convertible Notes using the effective interest method. In addition, approximately $0.3 million of fees were considered debt issue costs that are being amortized as a non-cash interest expense over the life of the notes using the effective interest method. The Company recognized a loss on this transaction of approximately $0.9 million and this loss was included in the “Loss on extinguishment of debt” in the consolidated statement of operations in the second quarter of 2014. For further information on debt issue costs see Note-7, “Prepaid and Other Current Assets and Other Non-Current Assets.”

As a result of the Company’s decision to not pay the principal and interest on the 2015 Convertible Notes when due on March 1, 2015 and after exercise of a grace period until March 10, 2015, a cross default provision contained on the 2017 Convertible Notes was triggered. In addition, the Company voluntarily filed for reorganization under Chapter 11 of the Bankruptcy Code on March 9, 2015, which was an event of default under both the 2015 Convertible Notes and the 2017 Convertible Notes. Therefore all of the Company’s debt and related interest is considered due and callable once the default provisions were triggered and all debt has been classified as current at December 31, 2014. The following table shows the estimated remaining cash payments including interest payments related to the 2017 Convertible Notes, assuming no conversion (in thousands):

Year
2015	$	175,880
2016		-
2017		-
Total estimated remaining cash payments related to the 2017 Convertible Notes	$	175,880

The Company evaluated the 2013 Indenture for the 2017 Convertible Notes for potential embedded derivatives, noting that the conversion feature and make-whole provisions did not meet the embedded derivative criteria as set forth in ASC Topic 815, “Derivatives and Hedging”. Therefore, no additional amounts have been recorded for those items.

As of December 31, 2014, the net amount of $154.8 million includes the $168.7 million of principal reduced by $13.9 million of the remaining unamortized discount. The remaining unamortized discount of $13.9 million may be written off as a result of the Chapter 11 Case. However, if the structure of the debt remains unchanged after the post Chapter 11 proceedings, the unamortized discount will be amortized into interest expense, using the effective interest method, over the remaining life of the 2017 Convertible Notes, which mature in October 2017.  The Company is currently in default on its 2015 Convertible Notes. On March 9, 2015, the Debtor filed a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code as described in this Item 8 under the caption “—Voluntary Reorganization Under Chapter 11” and “Item 3. Legal Proceedings—Legal Proceedings Related to the Chapter 11 Case.” At December 31, 2014, using the conversion rate of 249.5866 shares per $1,000 principal amount of the 2017 Convertible Notes, if the $168.7 million of principal were converted into shares of common stock, the notes would convert into approximately 42.1 million shares of common stock.  As of December 31, 2014, there is no excess if-converted value to the holders of the 2017 Convertible Notes as the price of the Company’s common stock at December 31, 2014, $0.29 per share, is less than the conversion price.

The annual effective interest rate on the 2017 Convertible Notes, including the amortization of debt issue costs, is approximately 12.5%.

The following table shows the amount of interest expense related to the 2017 Convertible Notes, disregarding capitalized interest considerations, for the year ended December 31, 2014, 2013 and 2012, respectively:

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Interest expense related to the contractual interest coupon	$	13,755	$	3,258	$	-
Amortization of debt discount expense		4,005		959		-
Amortization of debt issue costs		610		135		-
Interest expense related to the 2017 Convertible Notes	$	18,370	$	4,352	$	-

Convertible Notes due 2015

During the first quarter of 2010, the Company closed on a private offering for an aggregate principal amount of $170.9 million of convertible notes due 2015. The 2015 Convertible Notes are the Company’s general senior unsecured obligations and rank equally in right of payment with all of the Company’s other existing and future senior unsecured indebtedness.  The 2015 Convertible Notes are subordinate to all of the Company’s secured indebtedness to the extent of the value of the assets collateralizing such indebtedness.  The 2015 Convertible Notes are not guaranteed by the Company’s subsidiaries. In September 2013, the Company repurchased $85.0 million of the aggregate principal amount of the $170.9 million of the 2015 Convertible Notes, leaving a principal balance of $85.9 million. In April 2014, $26.0 million of the aggregate principal amount of the 2015 Convertible Notes were exchanged for an additional $25.0 million aggregate principal amount of 2017 Convertible Notes in a private transaction. As a result, the Company had $59.9 million principal amount of 2015 Convertible Notes outstanding at December 31, 2014.

The interest rate on the 2015 Convertible Notes is 6.50% per year with interest payments due on March 1st and September 1st of each year.  The 2015 Convertible Notes mature with repayment of the $59.9 million principal amount (assuming no conversion) on March 1, 2015 (the “2015 Maturity Date”).

The Company elected not to pay the approximately $62 million in principal and interest due on March 1, 2015 on the 2015 Convertible Notes in order to use a 10-day grace period on principal due and a 30-day grace period on interest due to continue discussions with its debt holders regarding potential terms under which either one or both of the 2015 Convertible Notes and 2017 Convertible Notes could be restructured to provide a capital structure which would allow the Company to continue developing our oil and gas assets, and discussions with potential investors regarding alternative financing solutions. The Company was unable to reach an appropriate solution during the grace period and is in default on payment of the principal amount due under its 2015 Convertible Notes due on March 10, 2015 following its exercise of a 10-day grace period, which also triggered an event of default under its 2017 Convertible Notes, allowing the trustee or the holders of at least 25% in aggregate principal amount under each set of notes to declare the full amounts of principal and interest due. On March 9, 2015, the Debtor filed a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code as described in this Item under the caption “—Voluntary Reorganization Under Chapter 11.” The filing of the Chapter 11 Case also constituted an event of default that triggered repayment obligations under the 2015 Convertible Notes and the 2017 Convertible Notes. The ability of the holders of the 2015 Convertible Notes and the 2017 Convertible Notes to seek remedies and enforce their rights under the indentures was automatically stayed as a result of the filing of the Chapter 11 Case, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.

The initial conversion rate of 148.3856 shares per $1,000 principal amount (equal to an initial conversion price of approximately $6.74 per share of common stock) was adjusted on February 3, 2011 in accordance with the terms of the Indenture agreement dated February 8, 2010 (the “2010 Indenture”).

As a result, the conversion rate and conversion price changed to 169.0082 shares per $1,000 principal amount and $5.9169 per share of common stock, respectively. Upon conversion, if conversion is elected by the noteholders, the Company must deliver, at its option, either (1) a number of shares of its common stock determined as set forth in the 2010 Indenture, (2) cash, or (3) a combination of cash and shares of its common stock.

Holders were permitted to convert their 2015 Convertible Notes at their option at any time prior to the close of business on the second business day immediately preceding the 2015 Maturity Date under any of the following circumstances:

(1) during any fiscal quarter (and only during such fiscal quarter) commencing after March 31, 2010, if the last reported sale price of the Company’s common stock is greater than or equal to 130% of the conversion price of the 2015 Convertible Notes for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter;

(2) prior to January 1, 2015, during the five business-day period after any ten consecutive trading-day period in which the trading price of $1,000 principal amount of the 2015 Convertible Notes for each trading day in the measurement period was less than 97% of the product of the last reported sale price of the Company’s common stock and the conversion rate on such trading day;

(3) if the 2015 Convertible Notes have been called for redemption; or

(4) upon the occurrence of one of a specified number of corporate transactions.

Holders were also permitted to convert the 2015 Convertible Notes at their option at any time beginning on February 1, 2015, and ending at the close of business on the second business day immediately preceding the 2015 Maturity Date or may hold the 2015 Convertible Notes to maturity and be paid their outstanding principal in cash.

As of February 3, 2013, the Company was permitted to redeem for cash all or a portion of the 2015 Convertible Notes at a redemption price of 100% of the principal amount of the notes to be redeemed plus any accrued and unpaid interest to, but not including, the redemption date, plus a “make-whole” payment if: (1) for at least 20 trading days in any consecutive 30 trading days ending within 5 trading days immediately before the date the Company mails the redemption notice, the “last reported sale price” of its common stock exceeded 175% of the conversion price in effect on that trading day, and (2) there is no continuing default with respect to the notes that has not been cured or waived on or before the redemption date.

No holders converted their 2015 Convertible Notes and the Company did not redeem any 2015 Convertible Notes prior to the 2015 Maturity Date.

The 2010 Indenture for the 2015 Convertible Notes contains customary terms and covenants and events of default, the occurrence and continuation of which could result in the acceleration of amounts due under the 2015 Convertible Notes.

Net proceeds from the sale of the $170.9 million of 2015 Convertible Notes, after deducting the discounts and commissions and any offering expenses payable by the Company, were approximately $164.9 million.  The initial purchaser received commissions of approximately $5.5 million in connection with the sale and the Company incurred approximately $0.6 million of direct expenses in connection with the offering.  The Company used the net proceeds for general corporate purposes, including capital expenditures and working capital, reduction or refinancing of debt, and other corporate obligations.

The Company accounts for the 2015 Convertible Notes in accordance with ASC Topic 470, “Debt,” as it pertains to accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). Under the accounting guidance, convertible debt instruments that may be settled entirely or partially in cash upon conversion are required to be separated into liability and equity components, with the liability component amount determined in a manner that reflects the issuer’s non-convertible debt borrowing rate. The value assigned to the liability component is determined by measuring the fair value of a similar liability that does not have an equity conversion feature. The value assigned to the equity component is determined by deducting the fair value of the liability component from the initial proceeds. The excess of the principal amount of the liability component over its carrying amount (the non-cash discount) is amortized to interest cost using the effective interest method over the term of the 2015 Convertible Notes. In addition, transaction costs incurred that directly relate to the issuance of convertible debt instruments must be allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively.

The Company estimated its non-convertible borrowing rate at the date of issuance of the 2015 Convertible Notes to be 12%. The 12% non-convertible borrowing rate represented the borrowing rate of similar companies with the same credit quality as the Company and was obtained through a quote from the initial purchaser. Using the income method and discounting the principal and interest payments of the 2015 Convertible Notes using the 12% non-convertible borrowing rate, the Company estimated the fair value of the $170.9 million 2015 Convertible Notes to be approximately $136.3 million with the discount being approximately $34.6 million. The discount is being amortized as non-cash interest expense over the life of the notes using the effective interest method. In addition, the Company allocated approximately $4.8 million of the $6.1 million of fees and commissions as debt issue costs that are being amortized as non-cash interest expense over the life of the 2015 Convertible Notes using the effective interest method. The remaining $1.3 million of fees and commissions were treated as transaction costs associated with the equity component. The net amount of the equity component was $33.3 million, which included the initial discount of $34.6 million reduced by $1.3 million of direct transaction costs.

In September 2013, the Company repurchased $85.0 million of aggregate principal amount of the 2015 Convertible Notes. As a result of the $85.0 million repurchase during the third quarter of 2013, approximately $12.2 million of the repayment was considered a retirement of debt and the remaining $72.8 million of the repayment were considered an exchange of debt. The $85.0 million of 2015 Convertible Notes were repurchased with an approximate discount of 10%. The Company recognized a gain on the retirement of the debt of approximately $0.2 million and this gain was included in the “Loss on extinguishment of debt” in the consolidated statement of operations in the third quarter of 2013. For further information on debt issue costs see Note-7, “Prepaid and Other Current Assets and Other Non-Current Assets.”

As a result of the exchange during the second quarter of 2014, the $26.0 million of aggregate principal amount of 2015 Convertible Notes exchanged was considered a retirement of debt and deemed a substantial modification of debt. The $26.0 million of 2015 Convertible Notes were exchanged with an approximate discount of 4%. The Company recognized a loss on the retirement of the debt of approximately $0.3 million and this loss was included in the “Loss on extinguishment of debt” in the consolidated statement of operations in the second quarter of 2014. For further information on debt issue costs see Note-7, “Prepaid and Other Current Assets and Other Non-Current Assets.”

The following table shows the estimated remaining cash payments including interest payments related to the 2015 Convertible Notes, assuming no conversion (in thousands):

Year
2015	$	61,837
Total estimated remaining cash payments related to the 2015 Convertible Notes	$	61,837

The Company evaluated the 2010 Indenture for the 2015 Convertible Notes for potential embedded derivatives, noting that the conversion feature and make-whole provisions did not meet the embedded derivative criteria as set forth in ASC Topic 815, “Derivatives and Hedging.” Therefore, no additional amounts have been recorded for those items.

As of December 31, 2014, the net amount of $59.5 million of 2015 Convertible Notes outstanding includes the $59.9 million of principal reduced by $0.4 million of the remaining unamortized discount. The remaining unamortized discount of $0.4 million may be written off as a result of the Chapter 11 Case. However, if the structure of the debt remains unchanged after the post Chapter 11 proceedings, the unamortized discount will be amortized into interest expense, using the effective interest method, over the remaining life of the 2015 Convertible Notes, which mature in March 2015.  The Company is currently in default on its 2015 Convertible Notes. On March 9, 2015, the Debtor filed a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code as described in this Item 8 under the caption “—Voluntary Reorganization Under Chapter 11” and “Item 3. Legal Proceedings—Legal Proceedings Related to the Chapter 11 Case.” At December 31, 2014, using the conversion rate of 169.0082 shares per $1,000 principal amount of the 2015 Convertible Notes, if the $59.9 million of principal were converted into shares of common stock, the notes would convert into approximately 10.1 million shares of common stock.  As of December 31, 2014, there is no excess if-converted value to the holders of the 2015 Convertible Notes as the price of the Company’s common stock at December 31, 2014, $0.29 per share, is less than the conversion price.

For the year ended December 31, 2014, the annual effective interest rate on the 2015 Convertible Notes, including the amortization of debt issue costs, was approximately 12.0%.

The following table shows the amount of interest expense related to the 2015 Convertible Notes, disregarding capitalized interest considerations, for the year ended December 31, 2014, 2013 and 2012, respectively:

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Interest expense related to the contractual interest coupon	$	4,386	$	9,622	$	11,111
Amortization of debt discount expense		2,896		6,051		6,698
Amortization of debt issue costs		762		977		956
Interest expense related to the 2015 Convertible Notes	$	8,044	$	16,650	$	18,765

$75.0 Million Secured Debt Facility

On July 6, 2011, the Company and its subsidiaries entered into a credit agreement with Credit Suisse and other parties (collectively the “lenders”), whereby the lenders agreed to provide a $75.0 million secured debt facility in two loan tranches to the Company’s subsidiary, BPZ E&P. The full amount available under the $75.0 million secured debt facility was drawn down by the Company on July 7, 2011. In April 2012, the Company and the lenders amended the terms of the $75.0 million secured debt facility and in May 2012, the Company prepaid $40.0 million of the principal balance of the $75.0 million secured debt facility. In May 2013, the Company prepaid the remaining principal balance of the $75.0 million secured debt facility.

Proceeds from the $75.0 million secured debt facility were utilized to pay certain fees and expenses under the $75.0 million secured debt facility, to fund a debt service reserve account under the $75.0 million secured debt facility, to reimburse certain affiliates of BPZ E&P for up to $14.0 million of capital and exploratory expenditures incurred by them in connection with the development of Block Z-1 and up to $6.0 million of capital and exploratory expenditures incurred by them in connection with the development in Block XIX in northwest Peru, and to finance BPZ E&P’s capital and exploratory expenditures in connection with the development of Block Z-1.

As a result of the prepayment of the remaining principal balance during the second quarter of 2013, the Company incurred $2.4 million of fees and a prepayment premium. The $2.4 million in fees and prepayment premium were recognized as a “Loss on extinguishment of debt” in the Consolidated Statement of Operations in the second quarter of 2013. Approximately $1.4 million representing the remaining unamortized debt issue costs on the loan was expensed as a “Loss on extinguishment of debt” in the Consolidated Statement of Operations when the Company prepaid the remaining principal in the second quarter of 2013. For further information on debt issue costs see Note-7, “Prepaid and Other Current Assets and Other Non-Current Assets.”

As a result of the prepayment and amendment during the second quarter of 2012, the Company incurred $5.8 million of fees and prepayment premium and $1.1 million of debt issue costs. The $5.8 million in fees and prepayment premium were recognized as a “Loss on extinguishment of debt” in the Consolidated Statement of Operations, of which 25% was paid at the time of the amendment and prepayment and 25% was paid at the time of each of the next three quarterly interest payment dates ending in January 2013. Approximately $1.5 million of the remaining $2.8 million of unamortized debt issue costs associated with the initial loan was expensed as a “Loss on extinguishment of debt” in the Consolidated Statement of Operations when the Company prepaid $40.0 million of principal. For further information on debt issue costs see Note-7, “Prepaid and Other Current Assets and Other Non-Current Assets.”

The $75.0 million secured debt facility, as amended, provided for an ongoing fee through July 2014 payable by BPZ E&P to the lenders of the Performance Based Arranger Fee whose amount is determined by the change in the price of Brent crude oil at inception of the loans and the price at each principal repayment date in accordance with the original loan principal repayment dates, subject to a 12% ceiling of the original principal amount borrowed. For further information on the Performance Based Arranger Fee, see Note-13, “Derivative Financial Instruments” and Note-15, “Fair Value Measurements and Disclosures.”

$40.0 Million Secured Debt Facility

In January 2011, the Company, through its subsidiaries, completed a credit agreement with Credit Suisse whereby Credit Suisse provided a $40.0 million secured debt facility to the Company’s power generation subsidiary, Empresa Eléctrica Nueva Esperanza S.R.L. On April 27, 2012, the Company and its subsidiaries, Empresa Eléctrica Nueva Esperanza S.R.L. and BPZ E&P, entered into a fourth amendment to the $40.0 million secured debt facility with Credit Suisse. In May 2013, the Company amended and restated the $40.0 million secured debt facility (which had been repaid by scheduled principal repayments to $25.5 million) by increasing the facility size and borrowing an additional $14.5 million. In September 2013, the Company prepaid the remaining principal balance of the $40.0 million secured debt facility.       

In 2013, the $14.5 million of proceeds from the amended and restated $40.0 million secured debt facility was utilized to meet the Company’s 2013 capital, exploration and development work programs as well as for general corporate purposes. In 2011, the proceeds from the $40.0 million secured debt facility were utilized to meet the Company’s 2011 capital, exploration and development work programs, and to reduce other debt obligations.

As a result of the prepayment of the remaining principal balance during the third quarter of 2013, the Company incurred $2.0 million in fees and prepayment premium. The $2.0 million in fees and prepayment premium were recognized as a “Loss on extinguishment of debt” in the Consolidated Statement of Operations. Approximately $1.7 million representing the remaining unamortized debt issue costs loan was expensed as a “Loss on extinguishment of debt” in the Consolidated Statement of Operations when the Company prepaid the remaining principal. For information on debt issue costs see Note-7, “Prepaid and Other Current Assets and Other Non-Current Assets.”

In May 2013, as a result of amending and restating the $40.0 million secured debt facility (which had been repaid by scheduled principal repayments to $25.5 million) to increase the facility size and borrowing an additional $14.5 million, the Company added $1.8 million of debt issue costs. The $1.8 million of new debt issue costs was combined with the remaining $0.6 million of unamortized debt issue costs and was originally planned to be amortized over the remaining term, ending in January 2015, using the effective interest method. For further information on debt issue costs, see Note-7, “Prepaid and Other Current Assets and Other Non-Current Assets.”

The $40.0 million secured debt facility, as amended, provided for ongoing fees through July 2013 payable to Credit Suisse including a Performance Based Arranger Fee whose amount is determined by the change in the price of Brent crude oil at inception of the loan and the price at each principal repayment date in accordance with the original loan principal repayment dates, subject to a 18% ceiling of the original principal amount borrowed. For further information on the Performance Based Arranger Fee, see Note-13, “Derivative Financial Instruments” and Note-15, “Fair Value Measurements and Disclosures.” 

Pacific Rubiales Obligations

On April 27, 2012, the Company and Pacific Rubiales executed a SPA where the Company formed an unincorporated joint venture with Pacific Rubiales to explore and develop the offshore Block Z-1 located in Peru.  Pursuant to the SPA, Pacific Rubiales agreed to pay $150.0 million for a 49% participating interest, including reserves, in Block Z-1 and agreed to fund $185.0 million of the Company’s share of capital and exploratory expenditures in Block Z-1 from the effective date of the SPA, January 1, 2012 (together, the “Pacific Rubiales Loans”). Until the required approvals were obtained, Pacific Rubiales provided the Company $65.0 million and other funds as loans to continue to fund the Company’s Block Z-1 capital and exploratory activities. These amounts were reflected as long-term debt prior to closing the transaction.

On December 14, 2012, Perupetro approved the terms of the amendment to the Block Z-1 License Contract to recognize the sale of a 49% participating interest, in offshore Block Z-1 to Pacific Rubiales. The Company and Pacific Rubiales waived and modified certain contract conditions in order to close the transaction. On December 30, 2012, the Peruvian Government signed the Supreme Decree for the execution of the amendment to the Block Z-1 License Contract.

At closing, Pacific Rubiales exchanged certain loans along with an additional $85.0 million, plus any other amounts due to the Company or from the Company under the SPA, for the interests and assets obtained from the Company under the SPA and under the Block Z-1 License Contract.

At December 31, 2014 and December 31, 2013, the Company reflected $22.5 million and $23.9 million, respectively, as other current liabilities and zero and $16.8 million, respectively, as other non-current liabilities for exploratory expenditures related to Block Z-1 under funding by Pacific Rubiales of the exploratory expenditures in Block Z-1 incurred in 2012. This amount is being settled by the Company and Pacific Rubiales under the terms of the SPA with the cash payments under the liability of $14.4 million occurring in 2014.

Capital Leases  

In June 2007, the Company entered into a capital lease agreement, with an option to purchase two vessels, the Namoku and the Nu’uanu, to assist in the development of the Corvina oil field. The capital lease assets were recorded at $6.2 million, which represented the present value of the minimum lease payments, or the aggregate fair market value of the assets.

In May 2009, the Company entered into an amendment of its lease agreement for the two vessels under charter, the Namoku and the Nu’uanu. Under the terms of the amended lease agreement, the charter, originally set to expire in November 2009, was extended for five years commencing on May 1, 2009.  During the first 18 months of the amended lease term, the daily charter rate for the use of both vessels was fixed. Commencing in November 2010, the daily charter rate for the use of both vessels was based on a tiered structure with the daily rate dependent upon the amount of the previous month’s average daily per barrel price of West Texas Intermediate Crude Oil (“WTI”), as indicated on the New York Mercantile Exchange. Any amount paid by the Company after November 2010 over the initial daily rate as a result of the escalated tiered structure based on the price of WTI was considered contingent rental payments.  The amount of the contingent lease payments paid in 2012 was $0.6 million. The amended lease agreement contained a $3.0 million purchase option after the third year of the lease, a $2.0 million purchase option after the fourth year of the lease and a mandatory $1.0 million purchase obligation by the Company after the fifth year of the lease. The Company accounted for the amended lease agreement in accordance with ASC Topic 840, “Leases.” Under the guidance, the lease agreement continued to be accounted for as a capital lease and the imputed interest rate necessary to reduce the net minimum lease payments to present value over the lease term is 34.9%. In May 2012, the Company exercised the third year purchase option for $3.0 million and purchased the marine vessels, the Namoku and the Nu’uanu, at which point titles to the vessels were transferred to the Company.

At December 31, 2014 and December 31, 2013, the Company had no amounts outstanding under capital leases.

Interest Expense

The following table is a summary of interest expense for the year ended December 31, 2014, 2013 and 2012, respectively:

	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Interest expense	$	27,920		$	26,016		$	31,719
Capitalized interest expense		(9,250	)		(9,858	)		(15,604	)
Interest expense, net	$	18,670		$	16,158		$	16,115