Commitments

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

5. Commitments

Operating Leases:

The Company leases office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. Leases assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term. A finance lease for office equipment is included in property and equipment, other current liabilities and other long-term liabilities.

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. The weighted average discount rate used was 5.5%. 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.

Operating lease costs for the twelve months ended December 31, 2020 were $574 thousand. Cash payments included in the operating lease cost for twelve months ended December 31, 2020 were $616 thousand. The weighted-average remaining operating lease terms is 2.5 months. The amortization and interest expense for financing lease amounted to $7,165 and the cash payment for the lease was $7,655 and the lease term remaining was for 4 months.

The payment schedule for the Company’s operating and financing lease obligations as of December 31, 2020 is as follows:


(Thousands of dollars)	Operating Leases			Financing Leases
2021	$	106		$	2

Total undiscounted lease payments	$	106		$	2
Less: Amount associated with discounting		(10	)		(0	)

Net operating lease liabilities	$	96		$	2

The Company amended certain leases for office space in Texas and Oklahoma providing for payments of $461 thousand and $89 thousand in 2020 and 2021, respectively.

Rent expense for office space for the years ended December 31, 2020 and 2019 was

$663,000

and $594,000, respectively.

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the years ended December 31, 2020 and 2019 is as follows:


	Year Ended December 31,
(Thousands of dollars)	2020			2019
Asset retirement obligation at beginning of period	$	21,118		$	21,334
Liabilities incurred		4			4
Liabilities settled		(1,286	)		(1,442	)
Liabilities divested		(5,731	)		—
Accretion expense		856			1,120
Revisions in estimated liabilities		(1,301	)		102

Asset retirement obligation at end of period	$	13,660		$	21,118

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.