Annual report pursuant to Section 13 and 15(d)

Asset Retirement Obligations

v2.4.0.8
Asset Retirement Obligations
12 Months Ended
Dec. 31, 2013
Asset Retirement Obligations

5. Asset Retirement Obligations

Pursuant to GAAP, 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):

 

 

  

2013

 

 

2012

 

Asset retirement obligations, beginning of period

  

$

384,053

  

 

$

393,880

  

Liabilities settled

  

 

(81,543

 

 

(112,827

Accretion of discount

  

 

20,918

  

 

 

20,055

  

Disposition of properties

  

 

(19,564

 

 

(3,993

Liabilities assumed through acquisition

  

 

4,233

  

 

 

31,664

  

Liabilities incurred

  

 

1,745

  

 

 

1,815

  

Revisions of estimated liabilities due to Hurricane Ike

  

 

6,801

 

 

 

(20,616

Revisions of estimated liabilities—all other

  

 

37,779

  

 

 

74,075

  

Asset retirement obligations, end of period

  

 

354,422

  

 

 

384,053

  

Less current portion

  

 

77,785

  

 

 

92,630

  

Long-term

  

$

276,637

  

 

$

291,423

  

Each year (or more often if conditions warrant) we review and, to the extent necessary, revise our ARO estimates. During 2013, we reduced our ARO by $81.5 million for the plug and abandonment work performed during the year (including reductions of $11.6 million to plug and abandon wells and facilities damaged by Hurricane Ike). The acquisition of the Callon Properties caused an increase of $4.2 million. Revisions related to Hurricane Ike were a net increase of $6.8 million and other revisions increased ARO by $37.8 million.  These were attributable to: a) regulation interpretations issued by the Bureau of Safety and Environmental Enforcement (“BSEE”), 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 abandonment work than previously estimated due to operational issues. In addition, increases in estimates were made for certain non-operated properties.

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 BSEE, 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.