Commitments

12 Months Ended

Dec. 31, 2021

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 new finance lease for office equipment is included in property and equipment, other current liabilities and other long-term liabilities this quarter. 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 year ended December 31, 2021 was $577 thousand. Cash payments included in the operating lease cost for year ended December 31, 2021 was $599 thousand. The weighted-average remaining operating lease terms is 15 months.

The Company amended certain leases for office space in Texas providing for payments of $599,000 in 2021, $601,000 in 2022 and $150,000 in 2023.

Rent expense for office space the year

ended December 31, 2021 and 2020 was $653,000 and $663,000, respectively.

The payment schedule for the Company’s operating lease obligations as of December 31, 2021 is as follows:


(Thousands of dollars)	Operating Leases
2022	$	601
2023		150

Total undiscounted lease payments	$	751
Less: Amount associated with discounting		(59	)

Net operating lease liabilities	$	692

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the years ended December 31, 2021 and 2020 is as follows:


	Year Ended December 31,
(Thousands of dollars)	2021			2020
Asset retirement obligation at beginning of period	$	13,660		$	21,118
Liabilities incurred		724			4
Liabilities settled		(1,047	)		(1,286	)
Liabilities divested		(52	)		(5,731	)
Accretion expense		642			856
Revisions in estimated liabilities		368			(1,301	)

Asset retirement obligation at end of period	$	14,295		$	13,660

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.