Commitments and Contingencies

6 Months Ended

Jun. 30, 2024

Commitments and Contingencies.

Commitments and Contingencies

Note 14. Commitments and Contingencies

Litigation and Environmental

As part of our normal business activities, we may be named as defendants in litigation and legal proceedings, including those arising from regulatory and environmental matters.

Although the Company is insured against various risks to the extent it believes it is prudent, there is no assurance that the nature and amount of such insurance will be adequate, in every case, to indemnify it against liabilities arising from future legal proceedings.

Environmental costs for remediation are accrued based on estimates of known remediation requirements. Such accruals are based on management’s best estimate of the ultimate cost to remediate a site and are adjusted as further information and circumstances develop. Those estimates may change substantially depending on information about the nature and extent of contamination, appropriate remediation technologies and regulatory approvals. Expenditures to mitigate or prevent future environmental contamination are capitalized. Ongoing environmental compliance costs are charged to expense as incurred. In accruing for environmental remediation liabilities, costs of future expenditures for environmental remediation are not discounted to their present value, unless the amount and timing of the expenditures are fixed or reliably determinable. At June 30, 2024 and December 31, 2023, the Company had no environmental reserves recorded in its Unaudited Condensed Consolidated Balance Sheet.

Revenue Payables in Suspense

During 2024, the Company determined that it had improperly classified certain non-operated revenue within revenues payable in suspense from 2015 through 2024 and had also retained revenue suspense on assets previously sold in 2018 for which no obligation existed subsequent to the date of close. As a result, the Company recorded an out-of-period adjustment of $2.8 million in 2024 to release such amounts as previously accrued within revenue payables in suspense, of which $2.2 million and $0.6 million included in oil and natural gas revenue and other income, respectively, in the Unaudited Condensed Consolidated Statements of Operations. Management considered qualitative and quantitative factors and concluded the out-of-period adjustment is immaterial to 2024 and each of the applicable periods.

Beta Pipeline Incident

Please refer to “Note 16. Beta Pipeline Incident” for details.

Sinking Fund Trust Agreement

Beta Operating Company, LLC (“Beta LLC”), a wholly owned subsidiary, assumed an obligation with a third party to make payments into a sinking fund in connection with the Company’s properties in federal waters offshore Southern California, the purpose of which is to provide funds adequate to decommission the portion of the San Pedro Bay Pipeline that lies within state waters and the surface facilities. Interest earned in the account stays in the account. The obligation to fund ceases when the aggregate value of the account reaches $4.3 million. As of June 30, 2024, the account balance included in restricted investments was approximately $4.5 million.

Supplemental Bond for Decommissioning Liabilities Trust Agreement

Beta LLC has a decommissioning obligation with BOEM in connection with the Company’s properties in federal waters offshore Southern California. The Company supports its decommissioning obligation with $161.3 million of A-rated surety bonds.

In December 2021, the Company entered into two escrow funding agreements with its surety providers to fund interest-bearing escrow accounts on a quarterly basis to reimburse and indemnify the surety providers for any claims arising under the surety bonds related to the decommissioning of our Beta LLC properties. In March 2024, the Company amended one of the escrow funding agreements to decrease the amount funded from $14.8 million per year to $8.0 million per year. There were no changes made to the second escrow agreement. The obligation for these agreements ceases when the total aggregate value of the escrow accounts reaches $172.6 million.

The below table outlines the updated funding commitment for these agreements at June 30, 2024 (in thousands):

	Payment Due by Period
Funding commitment	Total		Remaining 2024		2025		2026		2027		2028		Thereafter
Federal escrow fund payments	$	142,728	$	4,000	$	8,000	$	8,000	$	8,000	$	8,000	$	106,728
State escrow fund payments		9,770		517		1,034		1,034		1,034		1,034		5,117
Total sinking fund payments	$	152,498	$	4,517	$	9,034	$	9,034	$	9,034	$	9,034	$	111,845

As of June 30, 2024, the Company has funded $20.4 million into the escrow accounts which is reflected in “Restricted investments” on the Unaudited Condensed Consolidated Balance Sheet.