15. Commitments and Contingencies

Litigation

The Company is subject to certain claims and litigation arising in the normal course of business. In the opinion of management, the outcome of such matters will not have a materially adverse effect on the consolidated results of operations or financial position of the Company.

Environmental Remediation

Various federal, state, and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company’s operations and the costs of its oil and gas exploration, development, and production operations. The Company does not anticipate that it will be required in the near future to expend significant amounts in relation to the consolidated financial statements taken as a whole by reason of environmental laws and regulations, and appropriately no reserves have been recorded.

Lease Agreement

The Company entered into an operating lease agreement for its corporate office in October 2014 which will expire in October 2021. Future minimum annual lease payments are as follows:

In thousands	Future Minimum Rentals
2018	$	412
2019		422
2020		432
2021		368
Total minimum lease payments	$	1,634

Rent expense was approximately $439 and $375 thousand for the years ended December 31, 2017 and 2016, respectively. The Company relocated its corporate office to an owned building in February 2018 but will continue to be responsible for the minimum annual lease payments noted above regardless of subrental income, if any, the Company will receive from the property going forward.

Significant Contracts

As of December 31, 2017, the Company had one drilling rig under contract. The contract, which expires on July 19, 2018, provides for a drilling rate $18,500 per day through January 18, 2018, at which time the daily rate increases to $18,750 per day through the remainder of the term. The early termination fee equals 80% of the daily drilling rate times the number of days remaining on the contract term, which was approximately $2.7 million as of December 31, 2017.

In February 2018, the Company signed an additional rig under contract to drill four wells commencing in April 2018 and provides for a drilling rate of $20,000 per day. The early termination fee equals the greater of demobilization costs or $200,000, plus $200,000 for each undrilled well.

In March 2018, the Company signed a dedicated fleet contract that provides for hydraulic fracturing and wireline services at variable rates depending on the work performed. The early termination fee equals $133,000 for each of 15 scheduled wells that is not hydraulically fractured as of the date of termination. The contract expires on December 31, 2018.