Commitments and Contingencies

12 Months Ended

Dec. 31, 2024

Commitments and Contingencies.

Commitments and Contingencies

Note 18. 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 the Company 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 December 31, 2024 and 2023, the Company had no environmental reserves recorded.

Beta Pipeline Incident

Please refer to “Note 17. Beta Pipeline Incident” for details.

Sinking Fund Trust Agreement

Beta Operating Company, LLC, a wholly owned subsidiary, assumed an obligation with a third party to make payments into a sinking fund in connection with its 2009 acquisition of the Beta properties, 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. Under the terms of the agreement, the operator of the properties is obligated to make monthly deposits into the sinking fund account in an amount equal to $0.25 per barrel of oil and other liquid hydrocarbon produced from the acquired working interest. 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 December 31, 2024, the account balance included in restricted investments was approximately $4.5 million.

Supplemental Bond for Decommissioning Liabilities Trust Agreement

Beta Operating Company, LLC has an obligation with BOEM in connection with the 2009 acquisition of the Beta properties. The Company supports this obligation with $161.3 million in A-rated surety bonds.

Pursuant to these additional collateral requirements, on December 15, 2021, the Company entered into two escrow funding agreements, a federal escrow funding agreement and a state escrow funding agreement, 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 properties. As long as we continue to comply with our obligations under such escrow agreements, the surety providers party thereto have agreed to stay requests of additional collateral in the form of cash or letters of credit, certificates of deposit or other similar forms of liquid collateral. If any such additional collateral were requested, such additional collateral may negatively impact the Company’s liquidity position.

In March 2024, the Company amended the federal escrow funding agreement to decrease the amount funded from $14.8 million per year to $8.0 million per year. There were no changes made to the state escrow funding agreement. The obligation ceases when the aggregate value of the account reaches $172.6 million. As of December 31, 2024, the Company has funded $25.4 million into the escrow accounts which is reflected in “Restricted Investments” on the Consolidated Balance Sheet. The table below outlines our funding commitment under these agreements at December 31, 2024 (in thousands):

	Payment Due by Period
Funding commitment	Total		2025		2026		2027		2028		2029		Thereafter (1)
Federal escrow fund payments	$	138,253	$	8,000	$	8,000	$	8,000	$	8,000	$	8,000	$	98,253
State escrow fund payments		9,213		1,034		1,034		1,034		1,034		1,034		4,043
Total sinking fund payments	$	147,466	$	9,034	$	9,034	$	9,034	$	9,034	$	9,034	$	102,296

(1) The remaining payments will be made during the years of 2030 through 2042.

The expense related to the surety bonds is recorded in interest expense in the Company Statement of Consolidated Operations.

Operating Leases

The Company enters into leases for compressors, surface rentals, office space, warehouse space and equipment in our corporate office and operating regions. For the years ended December 31, 2024 and 2023, the Company recognized $10.7 million and $10.3 million of rental cost, respectively.

See Note 13 for the minimum lease payment obligations under non-cancelable operating leases with a remaining term in excess of one year.

Purchase Commitments

At December 31, 2024, the Company had a CO₂ purchase commitment with a third party associated with its Bairoil properties. The price we will pay for CO₂ generally varies depending on the amount of CO₂ delivered and the price of oil. The table below outlines its purchase commitments under these contracts based on pricing at December 31, 2024 (in thousands):

	Payment or Settlement Due by Period
Purchase commitment	Total		2025		2026		2027		2028		2029		Thereafter
CO2 minimum purchase commitment	$	3,770	$	3,770	$	—	$	—	$	—	$	—	$	—