Note 6 – Commitments and Contingencies

Commitments

The Company has entered into various agreements, which include drilling rig contracts of $31.1 million, gathering, processing, and transportation throughput commitments of $970.9 million, office leases, including maintenance, of $50.1 million, and other miscellaneous contracts and leases of $6.0 million. The annual minimum payments for the next five years and total minimum payments thereafter are presented below:



Years Ending December 31,	Amount⁽¹⁾ (in thousands)
2017	$	145,075
2018	148,240
2019	144,379
2020	141,010
2021	141,654
Thereafter	337,745
Total	$	1,058,103

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⁽¹⁾	During the third quarter of 2015, the Company closed its office in Tulsa, Oklahoma. These amounts include lease payments for the Tulsa office, net of sublease income. The Company expects to receive $2.7 million of total sublease income through 2019.

Drilling Rig Contracts

The Company has several drilling rig contracts in place to facilitate drilling plans. Early termination of these rig contracts as of December 31, 2016, would have resulted in termination penalties of $14.2 million, which would be in lieu of paying the remaining drilling commitments of $31.1 million included in the table above. For the years ended December 31, 2016, and 2015, the Company incurred $8.7 million and $13.7 million, respectively, of expenses related to the early termination of drilling rig contracts or fees incurred for rigs placed on standby, which are recorded in the other operating expenses line item in the accompanying statements of operations.

Pipeline Transportation Commitments

The Company has gathering, processing, and transportation throughput commitments with various third parties that require delivery of a minimum amount of natural gas, crude oil, NGLs, and water. As of December 31, 2016, the Company has commitments to deliver a minimum of 1,461 Bcf of natural gas, 70 MMBbl of crude oil, 13 MMBbl of NGLs, and 25 MMBbl of water through 2034. The Company will be required to make periodic deficiency payments for any shortfalls in delivering the minimum volume commitments under certain agreements. As of December 31, 2016, if the Company delivered no further product, the aggregate undiscounted deficiency payments total approximately $970.9 million through 2034. If a shortfall in the minimum volume commitment for natural gas is projected, the Company has rights under certain contracts to arrange for third party gas to be delivered, and such volumes would count toward its minimum volume commitment.

Subsequent to December 31, 2016, the Company entered into a definitive agreement for the sale of its outside-operated Eagle Ford shale assets held for sale at December 31, 2016, and expects to close the transaction in the first quarter of 2017. Upon closing of the sale, the Company would no longer be subject to transportation throughput commitments totaling 514 Bcf of natural gas, 52 MMBbl of oil, and 13 MMBbl of NGLs, or $501.9 million of the potential undiscounted deficiency payments presented in the table above.

As of the filing date of this report, the Company does not expect to incur any material shortfalls.

Office Leases

The Company leases office space under various operating leases with terms extending as far as 2026. Rent expense, net of sublease income, for the years ended December 31, 2016, 2015, and 2014, was $5.2 million, $6.1 million, and $6.5 million, respectively. The Company closed its office in Billings, Montana in November 2016 and paid $3.2 million to the lessor to terminate the lease, which is not reflected in the rent expense amount above.

Contingencies

The Company is subject to litigation and claims arising in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. In the opinion of management, the results of such pending litigation and claims will not have a material effect on the results of operations, the financial position, or the cash flows of the Company.