Asset Retirement Obligation

6 Months Ended

Jun. 30, 2017

8. 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 or gathering and transportation assets. Subsequently, the ARC is depreciated using the units-of-production method for production assets and the straight-line method for midstream assets. 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):



	June 30,		December 31,
	2017		2016
Asset retirement obligation, beginning balance	$	13,579	$	20,364
Liabilities added from acquisitions		195		912
Sold		—		(6,291)
Revisions to cost estimates		—		(2,399)
Settlements		(45)		(134)
Accretion expense		498		1,127
Asset retirement obligation, ending balance	$	14,227	$	13,579

Additional AROs increase the liability associated with new oil and natural gas wells and other facilities as these obligations are incurred. Abandonments of oil and natural gas wells and other facilities reduce the liability for AROs. During the six months ended June 30, 2017, and the year ended December 31, 2016, there were no significant expenditures for abandonments and as of June 30, 2017 and December 31, 2016, there were no assets legally restricted for purposes of settling existing AROs. During 2016, obligations were sold as part of the Mid-Continent Divestiture that significantly lowered the Partnership’s future abandonment obligations. Additional reductions in future abandonment obligations are expected in the third quarter 2017 as a result of the Non-Operated Production Divestiture, Oklahoma Production Divestiture and expected Texas Production Divestiture.