16. 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, 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, 2013 and 2012, the ARLP Partnership had approximately $88.7 million and $76.0 million, respectively, in surety bonds outstanding to secure the performance of its reclamation obligations.

The impact of discounting our estimated cash flows resulted in reducing the accrual for asset retirement obligations by $76.5 million and $70.7 million at December 31, 2013 and 2012, respectively. Estimated payments of asset retirement obligations as of December 31, 2013 are as follows (in thousands):

Year Ending December 31,
2014	$	2,091
2015	2,630
2016	8,072
2017	447
2018	1,036
Thereafter	145,122
Aggregate undiscounted asset retirement obligations	159,398
Effect of discounting	(76,500)
Total asset retirement obligations	82,898
Less: current portion	(2,091)
Asset retirement obligations	$	80,807

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

	Year ended December 31,
	2013		2012

Beginning balance	$	84,836	$	72,342
Accretion expense	3,004		2,853
Payments	(2,242)		(2,842)
Allocation of liability associated with acquisition, mine development and change in assumptions	(2,700)		12,483

Ending balance	$	82,898	$	84,836

For the year ended December 31, 2013, the allocation of liability associated with acquisition, mine development and change in assumptions is a net decrease of $2.7 million which was primarily attributable to extension of mine life estimate at the Mettiki operation as a result of the acquisition of additional reserves (Note 3), offset by increased refuse site reclamation disturbances primarily at the Tunnel Ridge, Warrior and Pattiki operations and new disturbances associated with the construction of the Gibson South mine, 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, reclamation work completed and fluctuation in other projected mine life estimates.

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 3) 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.