Note 8 – Long-Term Liabilities

Monetary Production Payment

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



		September 30,		December 31,
		2013		2012

Monetary production payment	$	145,834	$	-

Less: current portion		(19,167)		-

Long-term monetary production payment	$	126,667	$	-

During the first quarter of 2013, our wholly-owned subsidiary, EEUK, entered into an 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.

In August 2013, we entered into an amendment to the Production Payment agreement. The amendment provided for the sale of an additional Production Payment for an incremental purchase price of $25 million, with an implied cost of 8.75%, thereby increasing the total amount outstanding to $150 million. Pursuant to the new amendment, our obligations will cease upon the earlier of the repayment of amounts outstanding or production from the Alba and Bacchus licences permanently ceasing. If repayment is made on the existing amortization schedule, we would pay approximately $175 million by 2015, including implied interest.

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. We have incurred $24.4 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.

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.

Other Liabilities

At September 30, 2013 and December 31, 2012, our other liabilities included the following:



		September 30,		December 31,
		2013		2012

Asset retirement obligations	$	130,110	$	139,821
Long-term derivative liabilities		6,244		7,402
Other		444		469

Total Other Liabilities	$	136,798	$	147,692

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 nine months ended September 30, 2013 and 2012:



		Nine Months Ended
		September 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)		17,298		5,614
Impact of foreign currency exchange rate changes		(207)		2,950
Payment of asset retirement obligations		(22,779)		(7,838)
Liabilities incurred and assumed		(4,333)		17,263
Carrying amount of asset retirement obligations, as of end of period		166,055		65,247
Less: Current portion of asset retirement obligations		(35,945)		(8,051)
Long-term asset retirement obligations	$	130,110	$	57,196