Note 7 – Long-Term Liabilities

Asset Retirement Obligations

Our asset retirement obligations relate to obligations for the future plugging and abandonment of oil and gas properties. The following table provides a rollforward of our asset retirement obligations for the six months ended June 30, 2013 and 2012:



		Six Months Ended
		June 30,
		2013		2012
Carrying amount of asset retirement obligations as of beginning of period	$	176,076	$	47,258
Accretion expense (included in DD&A expense)		11,355		3,750
Impact of foreign currency exchange rate changes		(10,594)		1,162
Payment of asset retirement obligations		(14,268)		(4,741)
Liabilities incurred and assumed		(5,756)		16,742
Carrying amount of asset retirement obligations, as of end of period		156,813		64,171
Less: Current portion of asset retirement obligations		(30,459)		(2,117)
Long-term asset retirement obligations	$	126,354	$	62,054

Monetary Production Payment

Our monetary production payment liability consisted of the following at June 30, 2013 and December 31, 2012:



		June 30,		December 31,
		2013		2012

Monetary production payment	$	125,000	$	-

Less: current portion		(20,833)		-

Long-term monetary production payment	$	104,167	$	-

In 2013, our wholly-owned subsidiary, EEUK, entered into a sale and purchase agreement for (i) $125 million providing for a monetary production payment (the “Production Payment”) over the proceeds of sale from a portion of EEUK’s entitlement to production from its interests in the Alba and Bacchus fields located in the U.K. sector of the North Sea and (ii) the issuance of warrants (discussed below). Repayment of the production payment will come solely from the proceeds from the sale of production from EEUK’s entitlement from the Alba and Bacchus fields. Obligations under the Production Payment will cease upon the earlier of the repayment of amounts outstanding under the Production Payment or production from the Alba and Bacchus licences permanently ceasing. We currently expect repayment of the Production Payment to occur by the end of 2014. If the Production Payment remains outstanding as expected through the end of 2014, the total repayment will be approximately $145.8 million. We incurred $21.2 million in costs related to the issuance of the Production Payment, including $7.6 million related to the fair market value of the warrants issued.

Our obligations under the Production Payment are secured by first priority liens over our interests in the licences and joint operating agreements relating to the Alba and Bacchus fields and the accounts into which proceeds from the sale of production from such fields are paid. Our obligations are also secured by second priority liens over certain of our other licences, joint operating agreements and assets.

In connection with the Production Payment, we issued warrants to purchase a total of 3,440,000 shares of our common stock at an exercise price of $3.014 per share, expiring on April 30, 2018, and warrants to purchase a total of 560,000 shares of our common stock at an exercise price of $3.685 per share, expiring on May 21, 2018.

Both warrant agreements are subject to customary anti-dilution provisions and include a cashless exercise provision entitling the investors to surrender a portion of the underlying common stock that has a value equal to the aggregate exercise price in lieu of paying cash upon exercise of a warrant.