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Commitments, Contingencies and Other Matters
 9 Months Ended
Sep. 30, 2012
Commitments, Contingencies and Other Matters

10. Commitments, Contingencies and Other Matters

As of September 30, 2012, the Company maintained letters of credit in the aggregate amount of $39.8 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. These letters of credit expire annually at various times during the year and are typically renewed. As of September 30, 2012, no amounts had been drawn under the letters of credit.

As of September 30, 2012, the Company had commitments to purchase approximately $154 million of major equipment for its drilling and pressure pumping businesses.

The Company’s pressure pumping business has entered into agreements to purchase minimum quantities of proppants from certain vendors. These agreements expire in 2013 and 2016. As of September 30, 2012, the remaining obligation under these agreements is approximately $32.0 million, of which materials with a total purchase price of approximately $3.1 million are expected to be delivered during the last quarter of 2012. In the event that the required minimum quantities are not purchased during any contract year, the Company would be required to make a liquidated damages payment to the respective vendor for any shortfall.

 

In November of 2011, the Company’s pressure pumping business entered into an agreement with a proppant vendor to advance up to $12.0 million to such vendor to finance the construction of certain processing facilities. This advance is secured by the underlying processing facilities and bears interest at an annual rate of 5.0%. Repayment of the advance is to be made through discounts applied to purchases from the vendor and repayment of all amounts advanced must be made no later than October 1, 2017. As of September 30, 2012, advances of approximately $8.0 million had been made under this agreement and repayments of approximately $273,000 had been received resulting in a balance outstanding of approximately $7.8 million.

The Company is party to various legal proceedings arising in the normal course of its business. The Company does not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations or cash flows.