Decommissioning and Other Asset Retirement Obligations

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements [Abstract]

Decommissioning and Other Asset Retirement Obligations

NOTE I - DECOMMISSIONING AND OTHER ASSET RETIREMENT OBLIGATIONS

The large majority of our asset retirement obligations consists of the future well abandonment and decommissioning costs for offshore oil and gas facilities and platforms owned by our Maritech subsidiary, including the remaining abandonment, decommissioning, and debris removal costs associated with offshore platforms destroyed by hurricanes. The amount of decommissioning liabilities recorded by Maritech is reduced by amounts allocable to joint interest owners and any contractual amount to be paid by the previous owner of the oil and gas property when the liabilities are satisfied. We also operate facilities in various U.S. and foreign locations that are used in the manufacture, storage, and sale of our products, inventories, and equipment, including offshore oil and gas production facilities and equipment. These facilities are a combination of owned and leased assets. We are required to take certain actions in connection with the retirement of these assets. We have reviewed our obligations in this regard in detail and estimated the cost of these actions. These estimates are the fair values that have been recorded for retiring these long-lived assets. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The costs for non-oil and gas assets are depreciated on a straight-line basis over the life of the asset.

The changes in the asset retirement obligations during the most recent two year period are as follows:

	Year Ended December 31,
	2011			2010
	(In Thousands)
Beginning balance for the period, as reported	$	272,815		$	224,110
Activity in the period:
Accretion of liability		4,325			5,539
Retirement obligations incurred		-			22
Revisions in estimated cash flows		79,360			131,889
Settlement of retirement obligations		(216,665	)		(88,745	)
Ending balance	$	139,835		$	272,815

We review the adequacy of our decommissioning liabilities whenever indicators suggest that the estimated cash flows underlying the liabilities have changed materially. For our Maritech segment, the timing and amounts of these cash flows are subject to changes in the energy industry environment and other factors and may result in additional liabilities to be recorded. During 2011, we increased the estimated cash flows to decommission these properties by approximately $80.2 million, which resulted in approximately $78.4 million of direct charges to expense during the year. These increased estimates are included in the revisions in estimated cash flows in the table above. A large portion of the excess decommissioning costs recorded during 2011 was associated with properties not operated by Maritech. Specific factors that caused Maritech's decommissioning liabilities to increase during 2011 included:

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�   certain properties that had been previously abandoned required additional work to relieve pressure on wells and to remove structural debris not previously known;

�   due to our continued extensive abandonment program begun in prior years, we were able to further refine our estimates for certain properties with similar characteristics and risk profiles to those recently abandoned; and

�   two platforms destroyed by hurricanes during 2005 were found to be more extensively damaged than previously estimated, which caused us to add additional costs for removing these downed structures.

Our estimate of remaining hurricane related decommissioning costs is approximately $27.5 million and has been accrued as part of Maritech's decommissioning liabilities. Settlements of asset retirement obligations during 2011 include approximately $122.0 million of obligations associated with oil and gas properties that were sold by Maritech during the year.

In September 2010, the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) provided in a Notice to Lessees No. 2010-G05 (NTL 2010-G05) rules for the plugging and abandonment of wells and decommissioning of associated platforms and facilities. NTL 2010-G05 provides specific guidelines for the maximum time that an operator has to permanently plug wells and decommission platforms and facilities upon occurrence of certain events, including the end of useful operations, cessation of commercial production, and expiration of leases. As of December 31, 2010, Maritech identified significant adjustments to be made to increase its decommissioning liabilities to reflect current industry developments, including the impact from these NTL 2010-G05 "Idle Iron Guidance" regulations. The adjustments made during 2010 resulted in $54.0 million of direct charges to expense, and the remainder was charged to the associated properties and partly contributed to asset impairments during the year.