Annual report pursuant to Section 13 and 15(d)

Asset Retirement Obligations

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Asset Retirement Obligations
12 Months Ended
Dec. 31, 2018
Asset Retirement Obligation Disclosure [Abstract]  
Asset Retirement Obligations

6. Asset Retirement Obligations  

Asset retirement obligations associated with the retirement of tangible long-lived assets are 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 table is a reconciliation of our ARO liability (in thousands):

 

Year Ended December 31,

 

 

2018

 

 

2017

 

Asset retirement obligations, beginning of period

$

300,446

 

 

$

334,438

 

Liabilities settled

 

(28,617

)

 

 

(72,409

)

Accretion of discount

 

18,431

 

 

 

17,172

 

Liabilities incurred and assumed through acquisition

 

4,286

 

 

 

163

 

Revisions of estimated liabilities (1) (2)

 

15,591

 

 

 

21,082

 

Asset retirement obligations, end of period

 

310,137

 

 

 

300,446

 

Less current portion

 

24,994

 

 

 

23,613

 

Long-term

$

285,143

 

 

$

276,833

 

 

(1)

Revisions in 2018 reflect cost estimate increases as a result of new data on the required scope of work becoming available to us through 2018.  This new data included data realized during the planning phase of the projects, and as the projects proceeded through the execution phase. This new data indicated that the scope was larger and more difficult than the scope used for end of 2017 estimates.  As an example, larger heavy lift vessels would be needed for certain platform removals, and certain wells needed additional well plugging operations to complete the decommissioning per agency requirements.

 

(2)

Revisions in 2017 were primarily related to increased costs associated with wells at four fields that experienced sustained casing pressure issues.  Wells that experience sustained casing pressure require more days and greater work scope to complete the abandonment project.  Partially offsetting are downward revisions to cost estimates from service providers for plug and abandonment work at certain locations.