17. ASSET RETIREMENT OBLIGATIONS

The majority of the ARLP Partnership's operations are governed by various state statutes and the Federal Surface Mining Control and Reclamation Act of 1977 ("SMCRA"), which establish reclamation and mine closing standards. These regulations, among other requirements, require restoration of property in accordance with specified standards and an approved reclamation plan. The ARLP Partnership accounts for its asset retirement obligations in accordance with FASB ASC 410, Asset Retirement and Environmental Obligations, which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred. The ARLP Partnership has estimated the costs and timing of future asset retirement obligations escalated for inflation, then discounted and recorded at the present value of those estimates. Federal and state laws require bonds to secure the ARLP Partnership's obligations to reclaim lands used for mining and are typically renewable on a yearly basis. As of December 31, 2012 and 2011, the ARLP Partnership had approximately $76.0 million and $70.6 million, respectively, in surety bonds outstanding to secure the performance of its reclamation obligations.

Discounting resulted in reducing the accrual for asset retirement obligations by $70.7 million and $71.3 million at December 31, 2012 and 2011, respectively. Estimated payments of asset retirement obligations as of December 31, 2012 are as follows (in thousands):

Year Ending December 31,

2013	$	3,192
2014		2,168
2015		1,987
2016		23,762
2017		1,107
Thereafter		123,360

Aggregate undiscounted asset retirement obligations		155,576
Effect of discounting		(70,740	)

Total asset retirement obligations		84,836
Less: current portion		(3,192	)

Asset retirement obligations	$	81,644

The following table presents the activity affecting the asset retirement and mine closing liability (in thousands):

	Year ended December 31,

	2012			2011
Beginning balance	$	72,342		$	58,227
Accretion expense		2,853			2,546
Payments		(2,842	)		(1,920	)
Allocation of liability associated with acquisition, mine development and change in assumptions		12,483			13,489

Ending balance	$	84,836		$	72,342

For the year ended December 31, 2012, the allocation of liability associated with acquisition, mine development and change in assumptions is a net increase of $12.5 million which was primarily attributable to the liability associated with the Onton mine acquisition (see Note 4) and increased refuse site reclamation disturbances with new mine development work at Tunnel Ridge and Gibson South, as well as the net impact of overall general changes in inflation and discount rates, current estimates of the costs and scope of remaining reclamation work and fluctuations in projected mine life estimates over all locations. These increases were offset in part by reductions for completed reclamation work at certain inactive locations.

For the year ended December 31, 2011, the allocation of liability associated with acquisition, mine development and change in assumptions is a net increase of $13.5 million which was primarily attributable to increased refuse site reclamation disturbances at the Mettiki, River View, MC Mining, Pontiki and Hopkins County Coal operations and new mine development work at Tunnel Ridge, as well as the net impact of overall general changes in inflation and discount rates, current estimates of the costs and scope of remaining reclamation work and fluctuations in projected mine life estimates. These increases were offset in part by reductions in the estimated impoundment cover material costs at Pattiki and completed reclamation work at certain inactive locations.