Commitments and contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and contingencies

Commitments and contingencies

a.    Litigation

From time to time, the Company is subject to various legal proceedings arising in the ordinary course of business, including proceedings for which the Company may not have insurance coverage. While many of these matters involve inherent uncertainty, as of the date hereof, the Company does not currently believe that any such legal proceedings will have a material adverse effect on the Company's business, financial position, results of operations or liquidity.

b.    Drilling rig contracts

The Company has committed to drilling rig contracts with a third party to facilitate the Company's drilling plans. Two of these contracts are for a term of multiple months and contain early termination clauses that require the Company to potentially pay penalties to the third party should the Company cease drilling efforts. These penalties would negatively impact the Company's financial statements upon early contract termination. There were no penalties incurred for early contract termination for either of the three months ended March 31, 2020 or 2019. As the Company's current drilling rig contracts are operating leases under the scope of ASC 842, the present value of the future commitment as of March 31, 2020 related to the drilling rig contract with an initial term greater than 12 months is included in current and noncurrent operating lease liabilities on the unaudited consolidated balance sheet as of March 31, 2020. The future commitment of $0.3 million as of March 31, 2020 related to a drilling rig contract with an initial term less than 12 months is not recorded in the unaudited consolidated balance sheets. Management does not currently anticipate the early termination of these contracts in 2020. See Note 17 for additional information regarding the drilling rig contracts as they pertain to a related party.

c.    Firm sale and transportation commitments

The Company has committed to deliver, for sale or transportation, fixed volumes of product under certain contractual arrangements that specify the delivery of a fixed and determinable quantity. If not fulfilled, the Company is subject to firm transportation payments on excess pipeline capacity and other contractual penalties. These commitments are normal and customary for the Company's business. In certain instances, the Company has used spot market purchases to meet its commitments in certain locations or due to favorable pricing. Management anticipates continuing this practice in the future. No firm transportation payments on excess pipeline capacity or other contractual penalties were incurred during the three months ended March 31, 2020. The Company incurred firm transportation payments on excess pipeline capacity and other contractual penalties of $0.5 million during the three months ended March 31, 2019. These firm transportation payments on excess pipeline capacity and other contractual penalties are netted with the respective revenue stream on the unaudited consolidated statements of operations. Future firm sale and transportation commitments of $314.7 million as of March 31, 2020 are not recorded on the unaudited consolidated balance sheets.

d.    Federal and state regulations

Oil and natural gas exploration, production and related operations are subject to extensive federal and state laws, rules and regulations. Failure to comply with these laws, rules and regulations can result in substantial penalties. The regulatory burden on the oil and natural gas industry increases the cost of doing business and affects profitability. The Company believes that it is in compliance with currently applicable federal and state regulations related to oil and natural gas exploration and production, and that compliance with the current regulations will not have a material adverse impact on the financial position or results of operations of the Company. These rules and regulations are frequently amended or reinterpreted; therefore, the Company is unable to predict the future cost or impact of complying with these regulations.

e.    Environmental

The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, among other things, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed in the period incurred. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment or remediation is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments is fixed and readily determinable. Management believes no materially significant liabilities of this nature existed as of March 31, 2020 or December 31, 2019.