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Commitments
 12 Months Ended
Dec. 31, 2012
Commitments [Abstract]  
Commitments

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 at December 31, 2012 are as follows.

 

         

(Thousands of dollars)

   Operating
Leases		  

2013

   $ 662  

2014

     261  

2015

     122  
   

 

 

  

Total minimum payments

   $ 1,045  
   

 

 

  

Rent expense for office space for the years ended December 31, 2012 and 2011 was $755,000 and $800,000, respectively.

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the years ended December 31, 2012 and 2011 is as follows:

 

                 
    Year Ended December 31,  

(Thousands of dollars)

       2012             2011      

Asset retirement obligation at beginning of period

   $ 19,013     $ 17,147  

Liabilities incurred

     733       398  

Liabilities settled

     (15,361 )      (421 ) 

Accretion expense

     1,053       1,015  

Revisions in estimated liabilities

     3,574       874  
   

 

 

    

 

 

  

Asset retirement obligation at end of period

   $ 9,012     $ 19,013  
   

 

 

    

 

 

  

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.

 

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 $6.0 million with the contractor which is reflected in prepaid obligations at December 31, 2011. All work under this contract was completed in 2012.