Asset Retirement Obligations

12 Months Ended

Dec. 31, 2019

Asset Retirement Obligation Disclosure [Abstract]

Asset Retirement ObligationsThe Company has the obligation to plug and remediate its saltwater disposal wellsites when the assets are to be retired. This asset retirement obligation ("ARO") includes plugging inactive assets, removal of surface equipment, and remediation of soil contamination. The Company records a liability for the fair value of ARO that we can reasonably estimate, on a discounted basis, in the period in which the asset is acquired. The fair value of the

liability is calculated using discounted cash flow techniques and based on internal estimates and assumptions related to (i) future retirement costs, (ii) expected remaining lives of the assets, (iii) future inflation rates, and (iv) credit adjusted risk-free interest rates. Significant increases or decreases in these assumptions could result in a significant change to the fair value measurement.

During 2019, the Company increased its estimated ARO liability by $7.2 million. The additional operational and accounting information provided by the creation of our water midstream entity allowed management to determine which wellsites were candidates for further capital investment, and which were candidates for plugging and abandonment (“P&A” or plug & abandon). The first nine months of plugging and abandonment activity in 2019 provided additional information to revise our initial P&A estimates made when each disposal well was an extension of a trucking yard. As an extension of a trucking yard, a well may be plugged, but not abandoned since the trucking yard would still be operational. As a stand-alone water midstream entity, if ALM were to plug a well, it would likely also remediate and abandon the wellsite at the same time. The data gathered from the creation of the entity allowed us to make the upward revision of our estimate in the third quarter of 2019.

The following table presents activity in our ARO (in thousands):



	2019		2018
Balance as of January 1, 2019	$	2,587	$	2,507
Additions	281		16
Revision in estimate	7,205		—
Disposals	(124)		(148)
Expenditures	(671)		—
Accretion of discount	1,051		212
Balance as of December 31, 2019	$	10,329	$	2,587

The following table outlines our contractual obligations as of December 31, 2019 (in thousands):


	Retirement obligation
2020	$	1,285
2021	172
2022	146
2023	341
Thereafter	8,385
Total asset retirement obligations	$	10,329