11. Commitments and Contingencies

Lease Obligations

We currently lease and sublease, through January 31, 2019, corporate office space located at 717 Texas Avenue in downtown Houston, Texas. Total general and administrative rent expense for the years ended December 31, 2012, 2011 and 2010, was approximately $2.4 million, $1.3 million and $1.1 million, respectively. On January 1, 2013 we subleased 27,144 square feet of this space to a third party for a total rental of approximately $85,000 per month through January 31, 2014. The sublease rent will be accounted for as a reduction to rent expense. We recorded an onerous contract liability of $0.3 million as of December 31, 2012 related to this sublease. We have entered into various vehicle leases for periods ranging from 12 to 24 months. These contracts will expire at various times. We also have various other equipment leases. Total operational rent expense for the years ended December 31, 2012, 2011 and 2010, were approximately $2.4 million, $2.4 million and $2.3 million, respectively.

The following table provides information about our total operating lease obligations as of December 31, 2012:

	Operating leases (1)
2013	$	2,301,131
2014	1,050,151
2015	947,916
2016	961,813
2017	975,711
Thereafter	1,237,878
Total	$	7,474,600

(1) Operating leases include contracts related to office space, compressors, vehicles, office equipment and other. Operating lease commitments exclude a sublease of office space that is expected to reduce operating lease expense in 2013 and 2014 by approximately $1.0 million and $85,000, respectively

Legal Proceedings

From time to time, we are involved in legal proceedings relating to claims relating to our properties or operations or business or arising from disputes with vendors in the normal course of business.

Mineral interest owners in East Texas filed two causes of action against us on May 26, 2009 and August 26, 2009, respectively, in the District Court for San Augustine County in Texas alleging breach of contract for not paying lease bonuses on certain prospective oil and gas leases that were pursued by our leasing agent but never taken by Crimson. These cases were settled in January 2013 for an immaterial amount.

The holders of oil and gas leases in South Louisiana filed suit against Crimson and several co-defendants in June 2009 in the 31st Judicial District Court situated in Jefferson Davis Parish, Louisiana alleging failure to act as a reasonably prudent operator, failure to explore, waste, breach of contract, etc. in connection with two wells located in Jefferson Davis Parish. Many of the alleged improprieties occurred prior to our ownership of an interest in the wells at issue, although we may have assumed liability otherwise attributable to our predecessors-in-interest through the acquisition documents relating to the acquisition of our interest in these wells. The damages most-recently alleged by the plaintiffs are approximately $13.4 million. We and our co-defendants are vigorously defending this lawsuit and believe that we have meritorious defenses. We do not believe this suit will have a material adverse effect on our business, financial position, results of operations or cash flows, although we cannot guarantee that a material adverse effect will not occur.

In November 2010, Crimson, several predecessor operators and several product purchasers were named in a lawsuit filed in the District Court for Lavaca County in Texas by an entity alleging that it owns a working interest in a productive formation that has not been recognized by us or by predecessor operators to which we have granted indemnification rights. In dispute is whether ownership rights in specific depths were transferred through a number of decade-old poorly documented transactions. The trial court recently granted the plaintiffs motion for partial summary judgment as to liability. We are reviewing our potential exposure associated with this case and estimate that the maximum amount of damages that could be asserted by the plaintiffs is $4.9 million, exclusive of interest and legal fees which may be recoverable by the plaintiff if it ultimately prevails in this case. We are vigorously defending this lawsuit, believe that we have meritorious defenses and intend to appeal the aforementioned decision. We currently do not believe that this claim will have a material adverse effect on our business, financial position, results of operations or cash flows, although we cannot guarantee that a material adverse effect will not occur.

In September 2012, we were named as defendant in a lawsuit filed in district court for Harris County in Texas involving a title dispute over a 1/16th mineral interest in the producing intervals of certain wells operated by us in the Catherine Henderson “A” Unit in Liberty County in Texas. The plaintiff has alleged that, based on its interpretation of a series of 1972 deeds, it owns a 1/16th unleased mineral interest in the producing intervals of these wells on which it has not been paid (this claimed interest is in addition to a 1/16th unleased mineral interest on which it has been paid). We have made royalty payments with respect to the disputed interest in reliance, in part, upon leases obtained from successors to the grantors under the aforementioned deeds, who claim to have retained the disputed mineral interests thereunder, and we have intervened in a lawsuit regarding the disputed interest filed by these successors in the District Court for Liberty County. The plaintiff alleges damages in excess of $6.0 million, which is based on prior payments received on its undisputed 1/16th mineral interest. This case remains in its early stages and we are assessing the plaintiff’s claims and issues associated therewith, but we intend to vigorously defend this lawsuit. We believe if this matter were to be determined adversely, amounts owed to the plaintiff could be partially offset by recoupment rights we may have against other working interest and/or royalty interest owners in the unit. We do not believe this suit will have a material adverse effect on our business, financial position, results of operations or cash flows, although we cannot guarantee that a material adverse effect will not occur.

While many of these matters involve inherent uncertainty and we are unable at the date of this report to estimate an amount of possible loss with respect to certain of these matters, we believe that the amount of the liability, if any, ultimately incurred with respect to these proceedings or claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future annual results of operations.

Employment Agreements

In June 2011, we entered into amended and restated employment agreements with our President/Chief Executive Officer and Senior Vice President/Chief Financial Officer. Each agreement has a term of three years with automatic yearly extensions unless we or the executive officer elects not to extend the agreement. These agreements provide for an annual base salary of $450,000 and $365,000, respectively, subject to increases at the discretion of the Compensation Committee. If the contracts are terminated by us without cause or by the employee for good reason, and the employee has been in compliance with employee contract terms, the employee may receive a cash payment equal to 2.99 times the sum of the current calendar year’s base salary plus prior year’s annual cash incentive bonus, health insurance benefits for 36 months and acceleration to 100% vested status for all stock, stock option and other equity awards.

Also in June 2011, we entered into amended and restated employment agreements with two other Senior Vice Presidents. Each agreement has a term of two years with automatic yearly extensions unless we or the executive officer elects not to extend the agreement. These agreements provide for an annual base salary ranging from $220,000 to $230,000, subject to increases at the discretion of the Compensation Committee. If the contracts are terminated by us without cause or by the employee for good reason, and the employee has been in compliance with the employee contract terms, the employee is entitled to receive a cash payment equal to two times current year base salary plus prior year’s annual cash incentive bonus, health insurance benefits for 24 months and acceleration to 100% vested status for all stock, stock option and other equity awards.

In April 2012, we entered into an amended and restated employment agreement with one Senior Vice President. This agreement has a term of two years with automatic yearly extensions unless we or the executive officer elects not to extend the agreement. This agreement provides for an annual base salary of $240,000 per year, subject to increases at the discretion of the Compensation Committee. If the contracts are terminated by us without cause or by the employee for good reason, and the employee has been in compliance with the employee contract terms, the employee is entitled to receive a cash payment equal to two times current year base salary plus prior year’s annual cash incentive bonus, health insurance benefits for 24 months and acceleration to 100% vested status for all stock, stock option and other equity awards.