Other Long-Term Obligations and Commitments

3 Months Ended

Mar. 31, 2019

Other Long-Term Obligations and Commitments

(6) Other Long-Term Obligations and Commitments:

Operating Leases:

The Company leases office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term. As most of the Company’s lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain leases may contain variable costs above the minimum required payments and are not included in the right-of-use assets or liabilities. Leases may include renewal, purchase or termination options that can extend or shorten the term of the lease. The exercise of those options is at the Company’s sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Lease costs for the three months ended March 31, 2019 were $149 thousand. Cash paid for amounts included in lease costs for the three months ended March 31, 2019 were $138 thousand. The weighted-average remaining lease terms is 14 months and the weighted-average discount rate is 5.5%.

The payment schedule for the Company’s operating lease obligations as of March 31, 2019 is as follows:

(Thousands of dollars)	Operating Leases
2019	$	445
2020		155
2021		17
Total undiscounted lease payments	$	617
Less: Amount associated with discounting		(20	)
Net operating lease liabilities	$	597

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the three months ended March 31, 2019 is as follows:

(Thousands of dollars)	March 31, 2019
Asset retirement obligation at December 31, 2018	$	21,334
Liabilities incurred		—
Liabilities settled		(334	)
Accretion expense		280
Revisions in estimated liabilities		—
Asset retirement obligation at March 31, 2019	$	21,280

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.