Commitments and Contingencies
|12 Months Ended|
Dec. 31, 2018
|Commitments and Contingencies Disclosure [Abstract]|
|Commitments and Contingencies||
Commitments and Contingencies
The following table sets forth our significant commitments as of December 31, 2018, by category, for the next five years and thereafter:
Operating lease rental expense was $2.7 million, $1.0 million, $0.2 million and $2.4 million, for the years ended December 31, 2018 and 2017, the Successor period from September 13, 2016 through December 31, 2016, and the Predecessor period from January 1, 2016 through September 12, 2016, related primarily to field equipment, office equipment and office leases.
Drilling and Completion Commitments
We had a contractual commitment for one drilling rig as of December 31, 2018. Upon expiration of its original term in February 2019, the drilling rig will be converted from a fixed-term commitment to a pad-to-pad basis. We also had two other drilling rigs contracted as of December 31, 2018 on pad-to-pad terms. In December 2018, we entered into a one-year commitment, which can be terminated with 60-days’ notice by either party, to utilize certain frac services, which is effective January 1, 2019.
Gathering and Intermediate Transportation Commitments
We have long-term agreements with Republic Midstream and Republic Midstream Marketing, LLC (“Republic Marketing” and, together with Republic Midstream, collectively, “Republic”) to provide gathering and intermediate pipeline transportation services for a substantial portion of our crude oil and condensate production in the South Texas region as well as volume capacity support for certain downstream interstate pipeline transportation.
In August 2016, the Bankruptcy Court approved a settlement with Republic and authorized the assumption of certain amended agreements with Republic (the “Amended Agreements”). We paid Republic $0.3 million in connection with the settlement which is included in “Reorganization items, net” in our Consolidated Statements of Operations.
Under the terms of the Amended Agreements, Republic is obligated to gather and transport our crude oil and condensate from within a dedicated area in the Eagle Ford (the “Dedication Area”) via a gathering system and intermediate takeaway pipeline connecting to a downstream interstate pipeline operated by a third party. The amended gathering agreement reduced our minimum volume commitment from 15,000 to 8,000 gross barrels of oil per day. The term of the amended gathering agreement runs through 2041, with the term of the minimum volume commitment extended from 10 to 15 years through 2031. The gathering portion of these minimum commitments are being recognized as a component of our gathering, processing and transportation expense while the intermediate transportation and pipeline support commitments are recognized as a reduction to the index-based price that we receive for crude oil sold to Republic in accordance with Amended Agreements.
Under the amended marketing agreement, we have a 10-year commitment to sell 8,000 barrels per day of crude oil (gross) to Republic, or any third party, utilizing Republic Marketing’s capacity on a certain downstream interstate pipeline.
We have entered into certain contractual arrangements for other products and services. We have purchase commitments for certain materials as well as minimum commitments under information technology licensing and service agreements, among others.
We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, our management believes that these claims will not have a material effect on our financial position, results of operations or cash flows. As of December 31, 2018, we had a reserve in the amount of $1.3 million included in Accounts payable and accrued liabilities for the estimated settlement of disputes with partners regarding certain transactions that occurred in prior years. A total of $1.0 million of this amount was paid in January 2019. In addition, during 2018 we eliminated a $0.1 million reserve for a litigation matter that was ultimately resolved and did not require settlement.
Extensive federal, state and local laws govern oil and gas operations, regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. Numerous governmental departments issue rules and regulations to implement and enforce such laws that are often difficult and costly to comply with and which carry substantial administrative, civil and even criminal penalties for failure to comply. Some laws, rules and regulations relating to protection of the environment may, in certain circumstances, impose “strict liability” for environmental contamination, rendering a person liable for environmental and natural resource damages and cleanup costs without regard to negligence or fault on the part of such person. Other laws, rules and regulations may restrict the rate of oil and gas production below the rate that would otherwise exist or even prohibit exploration or production activities in sensitive areas. In addition, state laws often require some form of remedial action to prevent pollution from former operations, such as plugging of abandoned wells. As of December 31, 2018, we have recorded AROs of $4.3 million attributable to these activities. The regulatory burden on the oil and gas industry increases its cost of doing business and consequently affects its profitability. These laws, rules and regulations affect our operations, as well as the oil and gas exploration and production industry in general. We believe that we are in substantial compliance with current applicable environmental laws, rules and regulations and that continued compliance with existing requirements will not have a material impact on our financial condition or results of operations. Nevertheless, changes in existing environmental laws or the adoption of new environmental laws, including any significant limitation on the use of hydraulic fracturing, have the potential to adversely affect our operations.
The entire disclosure for commitments and contingencies.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef