Other Long-Term Obligations and Commitments

9 Months Ended

Sep. 30, 2023

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. 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 7.82%. 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 nine months ended September 30, 2023 and 2022 were $525,000 and $468,000, respectively. Cash payments included in the operating lease cost for the nine months ended September 30, 2023 and 2022 were $552,000 and $499,000, respectively. The weighted-average remaining operating lease terms as of September 30, 2023 and 2022 were 7.88 months and 6.33 months, respectively. The Company acquired and amended certain leases for office space in Texas providing for payments of $187,000 in 2023, $275,000 in 2024 and $45,000 in 2025.

Rent expense for office space for the nine months ended September 30, 2023 and 2022 was $555,000 and $563,000, respectively.

The payment schedule for the Company’s operating lease obligations as of September 30, 2023 is as follows:


(Thousands of dollars)	Operating Leases
2023	$	187
2024		275
2025		45

Total undiscounted lease payments	$	507
Less: Amount associated with discounting		(49	)

Total net operating lease liabilities	$	458
Less: Current portion included in current portion of asset retirement and other long-term obligations		381

Non-current portion included in other long-term obligations	$	77

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the nine months ended September 30, 2023 is as follows:


(Thousands of dollars)	September 30, 2023
Asset retirement obligation at December 31, 2022	$	15,443
Additions		16
Dispositions		(1,161	)
Liabilities settled		(2,727	)
Accretion of discount		550

Asset retirement obligation at September 30, 2023	$	12,121
Less current portion of asset retirement obligations		554

Asset retirement obligations, long-term		11,567

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.