Asset Retirement Obligations
|12 Months Ended|
Dec. 31, 2013
|Asset Retirement Obligations||
The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred by capitalizing it as part of the carrying amount of the long-lived assets. The Company records asset retirement obligations for the future abandonment costs of tangible assets such as platforms, wells, pipelines and other facilities. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the useful life of the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.
As part of securing the second ten year production license with the government of Gabon, the Company agreed to a cash funding arrangement for the eventual abandonment of the offshore wells, platforms and facilities. The agreement was finalized in the first quarter of 2014 providing for annual funding over the remaining life of the production license. The amounts paid will be reimbursed through the cost account and are non-refundable to the Company. The funding is expected to begin in the first half of 2014. The abandonment estimate for this purpose is estimated to be approximately $10.1 million net to the Company on an undiscounted basis. As in prior periods, the obligation for abandonment of the Gabon offshore facilities is included in the asset retirement obligation shown on the Company’s balance sheet.
A summary of the recording of the estimated fair value of the Company’s asset retirement obligations is presented as follows:
During the year ended December 31, 2013, the Company increased the asset retirement obligations to recognize the abandonment liability for two wells offshore Gabon. The 2012 cost revision of $5.7 million was primarily due to changes in asset retirement cost estimates on the Etame block offshore Gabon. The increase in the asset retirement obligation in 2011 was due to the first development well in the Granite Wash formation in North Texas.
The Company does not plan to abandon any material assets over the next five years.
The entire disclosure for an asset retirement obligation and the associated long-lived asset. An asset retirement obligation is a legal obligation associated with the disposal or retirement from service of a tangible long-lived asset that results from the acquisition, construction or development, or the normal operations of a long-lived asset, except for certain obligations of lessees.
Reference 1: http://www.xbrl.org/2003/role/presentationRef