Note 15 – Commitments and Contingencies

Commitments Related to Asset Retirement Obligations

We have several agreements related to abandonment liabilities for certain of our U.K. oil and gas properties. Under these agreements, unaffiliated third parties pledged cash to secure letters of credit covering certain of our abandonment liabilities and we agreed to reimburse the pledged cash in the event that the letters of credit are drawn and pledged cash is utilized to satisfy the commitment. We have no cash collateral associated with these agreements and the commitments under the agreements are not recorded as liabilities. The associated abandonment obligations are recorded in other long-term liabilities as part of our asset retirement obligations. Fees and expenses related to these agreements are included in “Letter of credit fees” in other expenses on our condensed consolidated statement of operations.

Decommissioning Security Agreements

Procurement Agreements

Combined Procurement Agreement

On January 24, 2014, we also entered into a letter of credit procurement agreement (the “Combined Procurement Agreement”) with an unaffiliated third party (Payee), where we agreed to reimburse the Payee for any expense incurred by it in connection with the posting of cash collateral to secure letters of credit issued for our account in the amount of approximately £78 million (approximately $130 million as of January 24, 2014, subsequently reduced to $90 million as discussed below). The letters of credit secure decommissioning obligations in connection with certain of our U.K. licences. The Combined Procurement Agreement was entered into to replace the Alba Reimbursement Agreement and the LOC Procurement Agreement.

Due to a change in the U.K. tax treatment for decommissioning, we have amended our Decommissioning Securities Agreement for the Alba field. The new tax law, which allows companies to treat decommissioning on an after-tax basis (including PRT), enabled us to reduce our current letter of credit amount on the Alba field from $120 million to approximately $55 million, resulting in an aggregate $90 million in outstanding letters of credit securing decommissioning obligations under the Combined Procurement Agreement.

Under the Combined Procurement Agreement, we agreed to pay a quarterly fee computed at a rate of LIBOR plus 7.00% per year (provided that LIBOR shall equal at least 1.25% per year) on the aggregate balance of posted cash collateral.

The Combined Procurement Agreement matures on the earlier of (a) November 30, 2017 and (b) the date 91 days prior to the maturity of the Company’s 5.5% convertible senior notes due 2016 and 11.5% convertible notes due 2016, if such notes have not been converted, cancelled, extinguished, extended or refinanced in full prior to such date, with a resulting maturity date not earlier than March 1, 2018. The Combined Procurement Agreement contains customary representations, warranties, covenants and provisions with respect to events of default that are substantially similar to the covenants in the Term Loan Facility. Our obligations under the Combined Procurement Agreement are unconditionally guaranteed by us and each of our current and future restricted subsidiaries and secured by substantially all of our assets and the assets of our current and future restricted subsidiaries.

As of March 31, 2014, we do not expect to begin decommissioning activities for the Alba field for many years. The timing of decommissioning activities will be determined by the ultimate performance and life of the reservoir, which is not expected to occur until 2029 or later.

LOC Procurement Agreement

On January 9, 2013, we entered into a LOC Procurement agreement (the “LOC Procurement Agreement”) with an unaffiliated third party entity, which matures on July 9, 2014. The LOC Procurement Agreement was entered into in connection with the unaffiliated third party’s entry into a credit support arrangement with a providing bank. Pursuant to this credit support arrangement, the third party pledged cash, contributed by one of our shareholders, to secure letters of credit in the amount of $33.0 million for the support of decommissioning obligations in connection with certain of our U.K. license agreements.

Concurrent with our entry into the Combined Procurement Agreement on January 24, 2014, the LOC Procurement Agreement was terminated, and we paid all outstanding and accrued fees totaling approximately $0.2 million.

Alba Reimbursement Agreement

During the second quarter of 2012, we entered into a reimbursement agreement covering approximately $120 million related to our decommissioning obligations for the Alba field (the “Alba Reimbursement Agreement”). We paid a fee of 13% per year, payable quarterly, computed based on the outstanding amount of each letter of credit. In addition, our obligations under the reimbursement agreement are secured on a pari passu basis with our obligations under the Revolving Credit Facility by a first lien on substantially all of our assets.

With the execution of the Combined Procurement Agreement, on January 24, 2014, we terminated the Alba Reimbursement Agreement and paid all outstanding and accrued fees totaling approximately $122 million.

Terminated Acquisition of Marcellus Assets

On July 17, 2011, we entered into agreements with SM Energy Company and certain other sellers named therein (“SM Energy”) for the purchase of oil and gas leases, producing properties, geophysical data, a pipeline and related assets in the Marcellus shale play in Pennsylvania for aggregate consideration of approximately $110 million (the “SM Purchase Agreements”). We terminated the agreements on December 14, 2011, based on our conclusion that (i) the title defects we identified, after analyzing SM Energy’s responses to the notice of defects and valuation of the defects; and (ii) the condition of the pipeline was not in compliance with applicable regulatory standards.

SM Energy filed a lawsuit against us in Texas state court on December 20, 2011 alleging that we breached the SM Purchase Agreements by terminating them and refusing to close on the transactions.

On April 16, 2014, we reached an agreement with SM Energy to settle and dismiss the litigation. In accordance with the settlement agreement, we will:

forfeit our $6 million deposit;

pay SM Energy $5 million;

pay an additional $4.5 million in three graduated payments, beginning in twelve months; and

issue warrants to purchase 2.1 million shares of our common stock.

We recorded $19 million in total settlement expense in connection with the settlement, including a $6 million deposit that was paid to SM Energy prior to the execution of the agreements in 2011.