6. Commitments

Operating Leases:

The Company has several non-cancelable operating leases, primarily for rental of office space, that have a term of more than one year. The future minimum lease payments for the operating leases as of December 31, 2011 are as follows.


(Thousands of dollars)	Operating Leases
2012	$	555
2013		434
2014		16

Total minimum payments	$	1,005

Rent expense for office space for the years ended December 31, 2011 and 2010 was $800,000 and $787,000, respectively.

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the years ended December 31, 2011 and 2010 is as follows:


	Year Ended December 31,
(Thousands of dollars)	2011			2010
Asset retirement obligation at beginning of period	$	17,147		$	19,366
Liabilities incurred		398			271
Liabilities settled		(421	)		(945	)
Accretion expense		1,015			1,014
Revisions in estimated liabilities		874			(2,559	)

Asset retirement obligation at end of period	$	19,013		$	17,147

The Company's liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the subjectivity of assumptions and the relatively long life of most of the Company's wells, the costs to ultimately retire the wells may vary significantly from previous estimates.

The change in the 2010 estimate is primarily due to higher commodity prices used to calculate proved reserves at December 31, 2010, which had the effect of lengthening the economic life of certain wells and decreasing what would otherwise have been the present value of future retirement obligations.

In December 2011, the Company entered into a fixed price contract for the plugging and abandonment of a substantial portion of its offshore properties. In connection with this contract, the Company deposited a net $6.0 million with the contractor which is reflected in prepaid obligations at December 31, 2011. All work under this contract is expected to be completed in 2012.