Asset Retirement Obligation

12 Months Ended

Dec. 31, 2015

Asset Retirement Obligation [Abstract]

Asset Retirement Obligation

9. ASSET RETIREMENT OBLIGATION

We recognize the fair value of a liability for an asset retirement obligation (ARO) in the period in which it is incurred if a reasonable estimate of fair value can be made. Each period, we accrete the ARO to its then present value. The associated asset retirement cost (ARC) is capitalized as part of the carrying amount of our oil and natural gas properties, equipment and facilities. Subsequently, the ARC is depreciated using a systematic and rational method over the asset’s useful life. The AROs recorded by us relate to the plugging and abandonment of oil and natural gas wells, and decommissioning of oil and natural gas gathering and other facilities.

Inherent in the fair value calculation of ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions result in adjustments to the recorded fair value of the existing ARO, a corresponding adjustment is made to the ARC capitalized as part of the oil and natural gas property balance.

The following table is a reconciliation of the ARO (in thousands):

	December 31,		December 31,
	2015		2014
Asset retirement obligation, beginning balance	$	17,031	$	9,513
Liabilities added from acquisitions		3,634		80
Liabilities added from drilling		—		59
Sold		(58)		—
Revisions to cost estimates		(1,156)		6,780
Settlements		(186)		(5)
Accretion expense		1,099		604
Asset retirement obligation, ending balance	$	20,364	$	17,031

Additional retirement obligations increase the liability associated with new oil and natural gas wells and other facilities as these obligations are incurred. Actual expenditures for abandonments of oil and natural gas wells and other facilities reduce the liability for asset retirement obligation. In 2015 and 2014, there were no significant expenditures for abandonments and there were no assets legally restricted for purposes of settling existing asset retirement obligations.  During the year ended December 31, 2015, revisions were made to the ARO liability based on recent costs incurred on abandoned wells, which were lower on average than originally projected.