Asset Retirement Obligations

12 Months Ended

Dec. 31, 2014

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 plugging and abandonment of its oil and gas properties. A liability for the fair value of an asset retirement obligation (“ARO”) 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 plugging and abandoning wells, estimated economic lives, estimated plugging and abandonment cost, 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 plugging and abandonment liabilities range from 5.5 percent to 12 percent. In periods subsequent to initial measurement of the liability, the Company must recognize period-to-period changes in the liability resulting from the passage of time, revisions to either the amount of the original estimate of undiscounted cash flows or changes in inflation factors and changes to the Company’s credit-adjusted risk-free rate as market conditions warrant.

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

	As of December 31,
	2014			2013
	(in thousands)
Beginning asset retirement obligation	$	121,186		$	120,518
Liabilities incurred	13,506			18,682
Liabilities settled	(11,372		)	(33,129		)
Accretion expense	6,090			5,997
Revision to estimated cash flows	(7,286		)	9,118
Ending asset retirement obligation	$	122,124		$	121,186

As of December 31, 2014 and 2013, accounts payable and accrued expenses contain $1.3 million and $2.5 million, respectively, related to the Company’s current asset retirement obligation liability for estimated plugging and abandonment costs associated with a platform structure that is being retired, which is also included in the table above.