Note 6 – Commitments and Contingencies

Commitments

The Company has entered into various agreements, which include drilling rig and completion service contracts of $86.9 million, gathering, processing, transportation throughput, and delivery commitments of $287.8 million, office leases, including maintenance, of $35.5 million, fixed price contracts to purchase electricity of $29.0 million, and other miscellaneous contracts and leases of $18.3 million. The annual minimum payments for the next five years and total minimum payments thereafter are presented below:



Years Ending December 31,	Amount (in thousands)
2019	$	132,502
2020	103,169
2021	88,785
2022	70,741
2023	37,334
Thereafter	24,931
Total	$	457,462

Drilling Rig and Completion Service Contracts

The Company has several drilling rig and completion service contracts in place to facilitate drilling and completion plans. Early termination of these contracts as of December 31, 2018, would have resulted in termination penalties of $45.9 million, which would be in lieu of paying the remaining commitments of $86.9 million included in the table above. For the year ended December 31, 2016, the Company incurred $8.7 million 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. No material expenses related to early termination or standby fees were recorded by the Company for the years ended December 31, 2018, or 2017.

Pipeline Transportation Commitments

The Company has gathering, processing, transportation throughput, and delivery commitments with various third-parties that require delivery of a minimum amount of oil, gas, and produced water. As of December 31, 2018, the Company has commitments to deliver a minimum of 29 MMBbl of oil, 595 Bcf of gas, and 21 MMBbl of produced water through 2027. 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, 2018, if the Company fails to deliver any product, as applicable, the aggregate undiscounted deficiency payments total approximately $287.8 million. This amount does not include deficiency payment estimates associated with approximately 18.6 MMBbl of future oil delivery commitments where we cannot predict with accuracy the amount and timing of these payments, as such payments are dependent upon the price of oil in effect at the time of settlement. Under certain of the Company’s commitments, if the Company is unable to deliver the minimum quantity from its production, it may deliver production acquired from third-parties to satisfy its minimum volume commitments. As of the filing of this report, the Company does not expect to incur any material shortfalls with regard to these commitments.

Drilling and Completion Commitments

In December 2018, the Company entered into an agreement that included minimum drilling and completion requirements for certain existing leases. If these minimum requirements are not satisfied by March 31, 2020, the Company would be required to pay penalties based on the difference between actual development progress and the minimum development requirements. The penalties could range from zero to a maximum of $60.0 million, with the maximum exposure assuming no development activity occurred prior to March 31, 2020. As of the filing of this report, the Company is committed to and expects to meet the minimum development requirements set forth in the agreement.

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, 2018, 2017, and 2016, was $4.5 million, $4.8 million, and $5.2 million, respectively. During the third quarter of 2015, the Company closed its office in Tulsa, Oklahoma and has subleased the space through the expiration of the lease. In the fourth quarter of 2018, the Company paid $1.3 million to the lessor to terminate the lease effective September 2019. The Company closed its office in Billings, Montana in November 2016 and paid $3.2 million to the lessor to terminate the lease. These lease termination fees are not reflected in the rent expense amounts 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 anticipated results of any pending litigation and claims are not expected to have a material effect on the results of operations, the financial position, or the cash flows of the Company.