Annual report pursuant to Section 13 and 15(d)

Asset Retirement Obligations

Asset Retirement Obligations
12 Months Ended
Dec. 31, 2012
Asset Retirement Obligations

5. Asset Retirement Obligations

Pursuant to the Asset Retirement and Environmental Obligations topic of the Codification, an asset retirement obligation associated with the retirement of a tangible long-lived asset is required to be recognized as a liability in the period in which a legal obligation is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted such that the cost of the ARO is recognized over the useful life of the asset. The fair value of the ARO is measured using expected cash outflows associated with the ARO, discounted at our credit-adjusted risk-free rate when the liability is initially recorded. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value.


The following is a reconciliation of our ARO liability (in thousands).


     2012     2011  

Asset retirement obligations, beginning of period

   $ 393,880      $ 391,316   

Liabilities settled

     (112,827     (59,958

Accretion of discount

     20,055        29,771   

Disposition of properties


Liabilities assumed through acquisition

     31,664        8,194   

Liabilities incurred

     1,815        565   

Revisions of estimated liabilities due to Hurricane Ike

     (20,616     4,744   

Revisions of estimated liabilities – all other

     74,075        19,248   







Asset retirement obligations, end of period

     384,053        393,880   

Less current portion

     92,630        138,185   








   $ 291,423      $ 255,695   







Each year (or more often if conditions warrant) we review and, to the extent necessary, revise our ARO estimates. During 2012, we reduced our ARO by $112.8 million for the plug and abandonment work performed during the year (including reductions of $29.6 million to plug and abandon wells and facilities damaged by Hurricane Ike). The acquisition of the Newfield Properties caused an increase of $31.7 million. Revisions made related to Hurricane Ike were a net decrease of $20.6 million, which was primarily attributable to the designation of a reef in place at one of the hurricane damaged platforms. Other revisions increased ARO by $74.1 million and were attributable to: a) regulation interpretations issued by the Bureau of Safety and Environmental Enforcement (which increased the amount of work involved), b) revisions to third-party contractor estimate prices for certain work on wells and structures, c) revisions accelerating the timing of planned work for certain wells, and d) revisions for certain wells that are taking longer to complete the plugging and abandoning work than previously estimated due to operational issues. In addition, increases in estimates were made for certain non-operated properties.

During 2011, we reduced our ARO by $60.0 million for the plug and abandonment work performed during the year (including $23.0 million to plug and abandon wells and facilities damaged by Hurricane Ike). Offsetting this decrease were the acquisitions of properties, including the Yellow Rose Properties and the Fairway Properties, which increased our obligations by $8.2 million. In addition, revisions were made related to Hurricane Ike, which increased the liability by $4.7 million. Other estimates were increased by $19.2 million primarily attributable to changes in estimates for certain non-operated properties and accelerating the expected timing of performing some of the work.