Note 7 – Property and Equipment

Property and equipment included the following:



	December 31,
	2014		2013
Oil and gas properties under the full cost method:
Subject to amortization	$	989,758	$	1,084,669
Not subject to amortization:
Incurred in 2014		945		—
Incurred in 2013		774		52,748
Incurred in 2012		3,087		138,641
Incurred prior to 2012		5,978		177,271
		1,000,542		1,453,329

Computers, furniture and fixtures		8,733		8,734
Total property and equipment		1,009,275		1,462,063

Accumulated depreciation, depletion and amortization		(539,766)		(389,912)

Net property and equipment	$	469,509	$	1,072,151

As of December 31, 2014, our properties not subject to amortization balance of $10.8 million relates to unevaluated well costs in Marcellus. Due to the uncertainty that the Bankruptcy Cases have on our ability to develop unproved properties and the potential covenant breach, we transferred $397.4 million in oil and gas properties from properties not subject to amortization to properties subject to amortization.

These costs will be transferred to the amortization base when it is determined whether or not proved reserves can be assigned to such properties. This analysis is dependent upon well performance, drilling results and development of identified projects and periodic assessment of reserves. We expect costs excluded from amortization to be transferred to the amortization base over the next year as previously drilled wells in the U.S. are completed and tied into infrastructure. We have no unevaluated costs in the U.K.

The following is a summary of our oil and gas properties not subject to amortization as of December 31, 2014:



Costs Incurred in the Year Ended December 31,
	2014		2013		2012		Prior to 2012		Total

Acquisition costs	$	—	$	—	$	—	$	—	$	—
Exploration costs		945		774		3,087		5,978		10,784
Capitalized interest		—		—		—		—		—

Total oil and gas properties not
subject to amortization	$	945	$	774	$	3,087	$	5,978	$	10,784

During 2014, 2013 and 2012, we capitalized $11.7 million, $12.4 million and $17.9 million, respectively, in certain directly related employee costs. During 2014, 2013 and 2012, we capitalized $9.8 million, $24.0 million and $26.9 million, respectively, in interest. All of these costs have been transferred to the amortization base as of December 31, 2014.

Oil and Gas Impairments

During 2014, 2013 and 2012, we recorded $476.7 million, $9.6 million and $53.1 million, respectively, in impairment of oil and gas properties, pre-tax, through the application of the full cost ceiling test at the end of each quarter. The primary reasons for the 2014 impairment was (1) the transfer of $397.4 million in oil and gas properties from properties not subject to amortization to properties subject to amortization and (2) the transfer of substantially all of our PUD reserves to probable undeveloped reserves. The transferred reserves are economically producible at December 31, 2014 and have a standard measure of discounted cash flows of approximately $75 million. The transfer of unproved properties and related PUD reserves was based on uncertainties that exist around the financing required to fund our participation in the development of our unproved properties and related PUD reserves in a reasonable amount of time due to our filing of Chapter 11 under the Bankruptcy Code including the potential consequences from our anticipated breach of our leverage covenant under our Amended Term Loan Facility which are further discussed in Note 1 – General and Note 3 – Voluntary Reorganization under Chapter 11.

As December 31, 2014, our properties not subject to amortization balance of $10.8 million relates to unevaluated well costs in Marcellus. Furthermore, should oil and gas prices remain depressed for an extended period of time, further impairments of our oil and gas properties are likely to be recorded both quarterly and annually in 2015.

The primary reason for the 2013 impairment was the evaluation of certain U.S. assets not subject to amortization which we no longer intend to pursue and accordingly are included in the full cost pool. We did not have an impairment of our U.K. oil and gas properties through the application of the full cost ceiling test at the end of 2013. The 2012 impairment was primarily due to the decline in U.S. oil and gas prices.

Insurance Settlements

During 2014, we received $13 million in interim insurance proceeds related to our insurance claim for the loss of production income and property damage resulting from the rupture of the Alba water injection pipeline. The portion of the proceeds attributable to loss of production income was $10.8 million and the portion attributable to property damage was $2.2 million. In addition, we received a $12.6 million insurance settlement regarding the loss, plug and abandonment and replacement of the E1Y well for Rochelle.

Assets Acquisitions - Marcellus and Haynesville

On November 8, 2013, we closed on a purchase and sale agreement and formed a joint venture partnership with Samson Exploration LLC (“Samson”), which included a sale of 50% of our upstream and midstream assets in the Pennsylvania Marcellus area to Samson. The agreement provides for the joint development of the Marcellus assets and includes a financing component. This joint venture provides the necessary capital for the next development phase in the core Daniel Field in Cameron County, Pennsylvania.