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Commitments And Contingencies
3 Months Ended
Mar. 31, 2014
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Property Reclamation Deposit

 

As of March 31, 2014 and December 31, 2013, $10.7 million is recorded in other assets on the consolidated balance sheets related a property reclamation deposit with ExxonMobil Corporation (the “Seller”). We are required to maintain the escrow account in effect for three years after all abandonment and remediation obligations have been completed. The funds in the escrow account are not to be returned to us until the later of three years after satisfaction of all abandonment obligations or December 31, 2026.  At certain dates subsequent to closing, we have the right to request a refund of a portion or all of the property reclamation deposit. Granting of the request is at the Seller’s sole discretion. In addition to the cash deposit, a letter of credit of $23.4 million is required in favor of the Seller. 

 

NPI Obligation

 

As a part of our acquisition of certain oil producing properties from the Fund in December 2012, we assumed a net profit interest (“NPI”) related to the Jay field.  Under the arrangement, the NPI is payable after: (i) funds are withheld, to the extent allowable each month under the arrangement, to pay for the NPI holder’s share of future development costs and abandonment obligations, and (ii) we are reimbursed for the NPI holder’s share of excess historical productions costs.  Once the NPI holder’s share of the excess historical costs is reimbursed, the NPI will be payable monthly to extent the NPI for that month exceeds amount withheld for that month for future development costs and abandonment obligations.  The NPI holder’s share of excess historical production costs amounted to $1.3 million and $2.9 million as of March 31, 3014 and December 31, 2013, respectively.  In addition, we will retain the NPI holder’s shares of future development costs and abandonment obligations, subject to future production, production costs, and capital spending level,  which will be paid using the funds withheld.  The NPI holder’s share along with our share of the abandonment costs is reflected in our asset retirement obligations as of March 31, 2014 and December 31, 2013.

 

Under the arrangement, the Partnership is required to deposit into a separate account the funds withheld from the NPI holder for their portion of the future development costs and abandonment obligations. The account for these funds in the amount approximately $18 million will be established in the second quarter of 2014.

 

Lease Guarantees 

   

The Fund has entered into various lease contracts that can routinely extend beyond five years which list the Partnership as a guarantor. In December 2012, we were named guarantor for QRM’s office lease in Houston, Texas with an approximate value of $26.8 million that terminates in 2022.  

 

Legal Proceedings

 

In the ordinary course of business, we are involved in various legal proceedings. To the extent we are able to assess the likelihood of a negative outcome for these proceedings, our assessments of such likelihood range from remote to probable. If we determine that a negative outcome is probable and the amount of loss is reasonably estimable, we accrue the estimated amount.  We currently have no legal proceedings with a probable adverse outcome. Therefore, we do not believe that the outcome of these legal proceedings, individually or in the aggregate, will have a materially adverse effect on our financial condition, results of operations or cash flows. 

 

Environmental Contingencies

 

As of March 31, 2014 and December 31, 2013, we had approximately $2.2 million and $2.3 million, respectively, in environmental liabilities related to the 2013 East Texas Acquisition and the the acquisition of primarily oil properties, almost all of which are in the ArkLaTex area, from Prize Petroleum, LLC and Prize Petroleum Pipeline, LLC (the “Prize Acquisition”). This is management’s best estimate of the costs for remediation and restoration with respect to these environmental matters, although the ultimate cost could vary. The environmental liability is recorded in the other liabilities caption on the consolidated balance sheet. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulation and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration.