Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(9) Commitments and Contingencies

Convertible Notes — Right of Repurchase

The $115.0 million in principal amount of 3³/4% Senior Convertible Notes due 2037 will mature on May 1, 2037 unless earlier converted, redeemed or repurchased. The holders of the Notes have the right to require the Company to purchase all or a portion of the Notes on May 1, 2012, May 1, 2017, May 1, 2022, May 1, 2027, and May 1, 2032 at a price which is required to be paid in cash, equal to 100% of the principal amount of the Notes to be repurchased.

Decommissioning of Offshore California Leases

The Company formerly owned a 2.41934% working interest in OCS Lease 320 in the Sword Unit, Offshore California, and its 91.68% owned subsidiary, Amber Resources Company of Colorado (“Amber”) formerly owned a 0.97953% working interest in the same lease. Lease 320 was conveyed back to the United States at the conclusion of litigation with the government (Amber Resources Co., et al. vs. United States, Civ. Act. No. 2-30 filed in the United States Court of Federal Claims) when the courts determined that the government had breached that lease (among others) and was liable to the working interest owners for damages; however, the government now contends that the former working interest owners are still obligated to permanently plug and abandon an exploratory well that was drilled on the lease and to clear the well site. The former operator of the lease commenced litigation against the government in United States District Court for the District of Columbia (Noble Energy Corp. vs. Kenneth L. Salazar, Secretary United States Department of the Interior, et al No. 1:09-cv-02013-EGS) seeking a declaratory judgment that the former working interest owners are not responsible for these costs as a result of the government’s breach of the lease. On April 22, 2011, the Court entered a judgment in favor of the government, ruling that the working interest owners jointly and severally share the responsibility to permanently plug and abandon the subject well, and that this duty was not discharged by the government’s breach of contract. On May 11, 2011, the former operator filed an appeal of this ruling to the United States Court of Appeals for the District of Columbia Circuit. It is currently unknown whether or not the appeal will be successful, or what the actual costs of decommissioning the well would be if the former working interest owners are ultimately held liable. If the working interest owners are held liable, the Company and Amber would be responsible for the payment of their respective proportionate shares of the cost.

In addition, the Company formerly owned a 24.21692% interest in Lease 409 (Non-unitized), a 5.88682% interest in Lease 415 (Point Sal) and a 7.03049% interest in Lease 416 (Point Sal), all of which are located offshore California in the Santa Maria Basin and were assigned back to the government at the conclusion of the Amber litigation discussed above. These leases were operated by a different operator who has commissioned a site clearance study for the decommissioning of operations on the affected leases, but has reserved the right to possibly later take the position that there is no obligation to engage in decommissioning efforts for specified legal and/or regulatory reasons. It is currently unknown whether or not decommissioning efforts will ultimately be undertaken, or what the associated costs would be.

212 Resources

In the fiscal quarter ended March 31, 2011, the Company was engaged in an arbitration with 212 Resources Corporation (“212”) that was filed with the American Arbitration Association on October 27, 2009. The matter was settled pursuant to a final Settlement Agreement executed by the parties on January 25, 2011. In accordance with the Settlement Agreement, the Company paid $1.5 million to 212 in consideration of mutual releases of claims and the termination of the underlying agreement.

DHS Rig Matter

The Company’s indirect, 49.8% owned affiliate DHS and certain of its employees, among others, have been notified by the Office of the Inspector General, Office of Investigations, of the Export-Import Bank of the United States, and the U.S. Department of Justice, that DHS and certain of its and the Company’s employees are the subject of an investigation in connection with a loan guarantee sought from the Export-Import Bank in the first quarter of 2010 of a loan from a Mexican bank sought by a DHS customer in Mexico. DHS has cooperated and will continue to cooperate with the investigation. This investigation is subject to uncertainties, and, as such, DHS is unable to estimate the nature of any possible liability that may result. There has been no communication with the government regarding this matter since February 10, 2011.