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Investment in American Shale Oil, LLC

12 Months Ended

Dec. 31, 2015

Investment in American Shale Oil, Llc [Abstract]

Investment in American Shale Oil, LLC

Note 5—Investment in American Shale Oil, LLC

AMSO, LLC holds a research, development and demonstration lease awarded by the U.S. Bureau of Land Management that covers an area of 160 acres in western Colorado (the “RD&D Lease”). The RD&D Lease had an initial ten-year term that began on January 1, 2007 and provides for a five-year extension if AMSO can demonstrate that a process leading to the production of commercial quantities of shale oil is diligently being pursued. In November 2015, AMSO satisfied the extension criteria, and the RD&D Lease was extended effective on January 1, 2017. If AMSO, LLC can demonstrate the economic and environmental viability of its technology, it will have the opportunity to submit a one-time payment pursuant to the applicable regulations and convert its RD&D Lease to a commercial lease on 5,120 acres, which overlap and are contiguous with the 160 acres in its RD&D Lease. (The acreage numbers that appear in this paragraph are unaudited).

In March 2009, a subsidiary of TOTAL S.A. (“Total”) acquired a 50% interest in AMSO, LLC in exchange for cash paid to the Company of $3.2 million and Total’s commitment to fund the majority of AMSO, LLC’s research, development and demonstration expenditures as well as certain other funding commitments. Immediately prior to this transaction, all owners of equity interests in AMSO, LLC other than AMSO exchanged their ownership interest for a proportionate share of a 1% override on AMSO, LLC’s future revenue. Following the transaction with Total, AMSO and Total each owned a 50% interest in AMSO, LLC.

On February 23, 2016, Total notified the Company of its decision not to continue to fund AMSO, LLC. The Company is currently considering its options with respect to the future of this project. AMSO and Total are obligated to fund certain remediation and reclamation costs. The Company estimates that its share of such costs would be in the range of nil to $2.0 million.

Except as set forth below, AMSO was responsible for funding 20% of the initial $50 million of AMSO, LLC’s approved expenditures, and is responsible for funding 35% of the approved expenditures between $50 million and $100 million, and 40% of the costs of the one-time payment for conversion of AMSO, LLC’s RD&D Lease to a commercial lease, in the event AMSO, LLC’s application for conversion is approved, with the remaining amounts of such expenditures to be funded by Total. All other expenditures are to be borne in proportion to equity ownership. The percentages for expenditures are subject to proportional adjustment in connection with certain changes in the equity ownership of AMSO LLC. At December 31, 2015, the cumulative contributions of AMSO and Total to AMSO, LLC were $82.9 million. AMSO’s allocated share of the net loss of AMSO, LLC is included in “Equity in the net loss of AMSO, LLC” in the accompanying consolidated statements of operations.

AMSO has the right to decide at each capital call whether or not to fund AMSO, LLC, and will make a determination at each such time. AMSO did not fund the capital calls for any quarter from the fourth quarter of 2013 through the second quarter of 2015. AMSO funded an aggregate of $0.3 million from the third quarter of 2015 through the first quarter of 2016, which was 28% of its share of the capital calls. In the period from January 2014 through January 2016, Total funded an aggregate of $4.6 million for AMSO’s share of the capital calls that AMSO did not fund. Because of AMSO’s decisions not to fund all of its share of AMSO, LLC’s expenditures, AMSO’s ownership interest in AMSO, LLC was reduced to 41.3% and Total’s ownership interest increased to 58.7%. In addition, AMSO’s share of future funding of AMSO, LLC up to a cumulative $100 million was reduced to 28.9% and Total’s share increased to 71.1%.

The agreements with Total provide for varying consequences for AMSO’s failure to fund its share at different stages of the project, including dilution of AMSO’s interest in AMSO, LLC or paying interest to Total for expenditures they fund on behalf of AMSO. Either Total or AMSO may terminate its obligations to make capital contributions and withdraw as a member of AMSO, LLC. Even if AMSO were to withdraw its interest in AMSO, LLC, it will remain liable for its share of expenditures for safety and environmental reclamation related to events occurring prior to its withdrawal.

The Company accounts for its ownership interest in AMSO, LLC using the equity method since the Company has the ability to exercise significant influence over its operating and financial matters, although it does not control AMSO, LLC. AMSO, LLC is a variable interest entity, however, the Company has determined that it is not the primary beneficiary, as the Company does not have the power to direct the activities of AMSO, LLC that most significantly impact AMSO, LLC’s economic performance.

The following table summarizes the change in the balance of the Company’s investment in AMSO, LLC:

		Year ended December 31,
(in thousands)		2015				2014				2013
Balance, beginning of period		$	(252	)		$	(252	)		$	242
Capital contributions			250				—				2,700
Equity in net loss of AMSO, LLC			(397	)			—				(3,194	)
Balance, end of period		$	(399	)		$	(252	)		$	(252	)

At December 31, 2015 and 2014, the liability for equity loss in AMSO, LLC was included in “Accrued expenses” in the consolidated balance sheet.

In part because of AMSO’s decision not to fund all of its share of AMSO, LLC’s expenditures, AMSO, LLC allocates its net loss beginning January 2014 as follows: $12.1 million of losses were allocated to Total, then it allocates any remaining losses proportionately such that over time AMSO and Total’s capital accounts as a percentage of AMSO, LLC’s total capital will equal their ownership interests.

Summarized balance sheets of AMSO, LLC are as follows:

December 31 (in thousands)		2015				2014
ASSETS
Cash and cash equivalents		$	204			$	1,052
Restricted cash and cash equivalents			47				47
Other current assets			85				119
Equipment, net			181				242
Other assets			861				861
TOTAL ASSETS		$	1,378			$	2,321
LIABILITIES AND MEMBERS’ INTERESTS
Current liabilities		$	654			$	1,324
Other liabilities			861				861
Members’ interests			(137	)			136
TOTAL LIABILITIES AND MEMBERS’ INTERESTS		$	1,378			$	2,321

Summarized statements of operations of AMSO, LLC are as follows:

		Year ended December 31,
(in thousands)		2015				2014				2013
REVENUES		$	—			$	—			$	—
OPERATING EXPENSES:
General and administrative			403				456				566
Research and development			4,782				7,755				8,601
TOTAL OPERATING EXPENSES			5,185				8,211				9,167
Loss from operations			(5,185	)			(8,211	)			(9,167	)
Other income			—				—				41
NET LOSS		$	(5,185	)		$	(8,211	)		$	(9,126	)