4.  OIL AND NATURAL GAS PROPERTIES AND EQUIPMENT

We review our oil and natural gas producing properties for impairment whenever events or changes in circumstances indicate that the carrying amount of such properties may not be recoverable. When an oil and natural gas property’s undiscounted estimated future net cash flows are not sufficient to recover its carrying amount, an impairment charge is recorded to reduce the carrying amount of the asset to its fair value. The fair value of the asset is measured using a discounted cash flow model relying primarily on Level 3 inputs into the undiscounted future net cash flows. The undiscounted estimated future net cash flows used in our impairment evaluations at each quarter end are based upon the most recently prepared independent reserve engineers’ report adjusted to use forecasted prices from the forward strip price curves near each quarter end and adjusted as necessary for drilling and production results.

During the second quarter of 2016, forecasted oil prices improved significantly, our negative price differential to Brent narrowed and we incurred no significant capital spending.  We considered these and other factors and determined that there were no events or circumstances triggering an impairment evaluation for most of our fields, with the exception of the Avouma field in the Etame Marine block offshore Gabon. At the Avouma field, the electrical submersible pumps (“ESPs”) in the South Tchibala 2-H well failed on June 23, 2016, and the well was temporarily shut-in. A workover is being planned to replace the ESPs and bring the well back on production by early fourth quarter 2016. The reserves used in our impairment evaluation of the Avouma field were revised to reflect the impact of this lost production for several months and the impact of the forward price curve.  The undiscounted future net cash flows for the Avouma field were in excess of the field’s carrying value.  No impairment was required for the Avouma field, or any of our other fields, for the second quarter of 2016.

Declining forecasted oil prices and other factors caused us to perform impairment reviews of our proved properties in the first and second quarters of 2015 and in the first quarter of 2016 for all fields in the Etame Marin block offshore Gabon and the Hefley field in North Texas. No impairment was required for the first quarter of 2016. As a result of a decline in forecasted oil prices and higher costs for planned development wells, for the first and second quarters of 2015, we recorded aggregate impairments of $11.2 million.