Other Long-Term Obligations and Commitments

12 Months Ended

Dec. 31, 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. Lease 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, Current portion of asset retirement and Other Long-Term Obligations in 2022. 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 7.54%. 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 years ended December 31, 2022 and 2021 were $628 thousand and $577 thousand, respectively. Cash payments included in the operating lease cost for years ended December 31, 2022 and 2021 were $673 thousand and $599 thousand, respectively. The weighted-average remaining operating lease terms for the years ended December 31, 2022 and 2021 were 11 months and 15 months, respectively. The Company acquired and amended certain leases for office space in Texas providing for payments of $673,000 in 2022, $684,000 in 2023, $202,000 in 2024 and $27,000 in 2025.

Rent expense for office space the years ended December 31, 2022 and 2021 was $755,000 and $653,000, respectively.

The payment schedule for the Company’s operating lease obligations as of December 31, 2022 is as follows:


(Thousands of dollars)	Operating Leases
2023	$	684
2024		202
2025		27

Total undiscounted lease payments	$	913
Less: Amount associated with discounting		(61	)

Total net operating lease liabilities	$	852
Less: Current portion included in Other current liabilities		647

Non-current portion included in Other liabilities	$	205

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the years ended December 31, 2022 and 2021 is as follows:


	Years Ended December 31,
(Thousands of dollars)	2022			2021
Asset retirement obligation at beginning of period	$	14,295		$	13,660
Net wells placed on production		11			724
Liabilities settled		(1,407	)		(1,047	)
Dispositions		(344	)		(52	)
Accretion expense		666			642
Revisions in estimated liabilities		2,222			368

Asset retirement obligation at end of period	$	15,443		$	14,295
Less: Current portion included in Current portion of asset retirement and other long-term obligations		1,918			1,073

Long-term Asset Retirement Obligations included in Asset Retirement Obligations	$	13,525		$	13,222

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.