Asset Retirement Obligations

12 Months Ended

Dec. 31, 2013

Asset Retirement Obligation Disclosure [Abstract]

Asset Retirement Obligations

Note 9 – Asset Retirement Obligations

The Company recognizes an estimated liability for future costs associated with the abandonment of its oil and gas properties. A liability for the fair value of an asset retirement obligation and a corresponding increase to the carrying value of the related long-lived asset are recorded at the time a well is completed or acquired. The increase in carrying value is included in proved oil and gas properties in the accompanying balance sheets. The Company depletes the amount added to proved oil and gas property costs and recognizes expense in connection with the accretion of the discounted liability over the remaining estimated economic lives of the respective oil and gas properties. Cash paid to settle asset retirement obligations is included in the operating section of the Company’s accompanying statements of cash flows.

The Company’s estimated asset retirement obligation liability is based on historical experience in abandoning wells, estimated economic lives, estimates as to the cost to abandon the wells in the future, and federal and state regulatory requirements. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred or revised. The credit-adjusted risk-free rates used to discount the Company’s abandonment liabilities range from 5.5 percent to 12 percent. Revisions to the liability could occur due to changes in estimated abandonment costs or well economic lives or if federal or state regulators enact new requirements regarding the abandonment of wells.

A reconciliation of the Company’s asset retirement obligation liability is as follows:

	As of December 31,
	2013			2012
	(in thousands)
Beginning asset retirement obligation	$	120,518		$	95,906
Liabilities incurred	18,682			13,050
Liabilities settled	(33,129		)	(8,101		)
Accretion expense	5,997			4,679
Revision to estimated cash flows	9,118			14,984
Ending asset retirement obligation	$	121,186		$	120,518

As of December 31, 2013 and 2012, the Company had $3.0 million and $1.4 million, respectively, of asset retirement obligation associated with the oil and gas properties held for sale included in a separate line item on the Company’s accompanying balance sheets. Additionally, as of December 31, 2013 and 2012, accounts payable and accrued expenses contain $2.5 million and $6.2 million, respectively, related to the Company’s current asset retirement obligation liability for estimated plugging and abandonment costs associated with platforms that are being relinquished or retired.