Other Long-Term Obligations and Commitments

6 Months Ended

Jun. 30, 2022

Other Long-Term Obligations and Commitments

(5) 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. Leased 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 six months ended June 30, 2022 was $306 thousand. Cash payments included in the operating lease cost for the six months ended June 30, 2022 was $324 thousand. The weighted-average remaining operating lease terms is 9 months.

The Company amended certain leases for office space in Texas providing for payments of $349,000 in 2022, $251,000 in 2023, $106,000 in 2024 and $27,000 in 2025.

Rent expense for office space six months ended June 30, 2022 and 2021 was $392,000 and $328,000, respectively.

The payment schedule for the Company’s operating lease obligations as of June 30, 2022 is as follows:


(Thousands of dollars)	Operating Leases

2022	$	349
2023	$	251
2024	$	106
2025		27

Total undiscounted lease payments	$	733
Less: Amount associated with discounting		(66	)

Net operating lease liabilities	$	667

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the

six

months ended June 30, 2022 is as follows:


(Thousands of dollars)	June 30, 2022

Asset retirement obligation at December 31, 2021	$	14,295
Liabilities settled		(835	)
Accretion expense		339

Asset retirement obligation at June 30, 2022	$	13,799

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.