COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is involved in various commercial and regulatory claims, litigation and other legal proceedings that arise in the ordinary course of its business. The Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its condensed consolidated financial statements. In accordance with accounting authoritative guidance, an accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the most likely anticipated outcome or the minimum amount within a range of possible outcomes. Because legal proceedings are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. No claims have been made, nor is the Company aware of any material uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration or the violation of any rules or regulations. As of the filing date of this report, there were no material pending or overtly threatened legal actions against the Company of which it is aware.

As previously described in our 2017 Form 10-K, the Company and the Colorado Department of Public Health and Environment (“CDPHE”) agreed to a Compliance Order on Consent (the “COC”) resolving the matters addressed by a compliance advisory issued to the Company for certain storage tank facilities located in the Wattenberg Field with respect to applicable air quality regulations. Pursuant to the terms of the COC, the Company paid an administrative penalty of $0.2 million in 2017. The Company must also adopt procedures and processes to address the monitoring, reporting, and control of air emissions. The COC further sets forth compliance requirements and criteria for continued operations and contains provisions regarding record-keeping, modifications to the COC, circumstances under which the COC may terminate with respect to certain wells and facilities, and the sale or transfer of operational or ownership interests covered by the COC. In order to be in compliance, the Company incurred $0.7 million in 2017, and currently anticipates spending $3.5 million in 2018, and $3.1 million for 2019 through 2022. The COC can be terminated after four years with a showing of substantial compliance and CDPHE approval.

Commitments

The purchase agreement to deliver fixed determinable quantities of crude oil to NGL became effective on April 28, 2017. The terms of the NGL agreement includes defined volume commitments over an initial seven-year term. Under the terms of the NGL agreement, the Company will be required to make periodic deficiency payments for any shortfalls in delivering minimum volume commitments, which are set in six-month periods beginning in January 2018. There were no minimum volume commitments for the year ending December 31, 2017. During 2018, the average minimum volume commitment will be approximately 10,100 barrels per day, and the minimum volume commitment increases by approximately 41% from 2018 to 2019 and approximately 3% each year thereafter for the remainder of the contract, to a maximum of approximately 16,000 barrels per day. The aggregate financial commitment fee over the remaining term, based on the minimum volume commitment schedule (as defined in the agreement) and the applicable differential fee, is $151.0 million as of March 31, 2018. Upon notifying NGL at least twelve months prior to the expiration date of the NGL agreement, the Company may elect to extend the term of the NGL agreement for up to three additional years.

On April 29, 2017, the Company entered into a new office lease agreement to rent office facilities. The lease is non-cancelable and expires in February 2022.

The annual minimum commitment payments under the NGL agreement and the office lease for the next five years as of March 31, 2018 are presented below (in thousands):



	NGL Commitments⁽¹⁾			Office Lease Commitments		Total
2018	$	12,172	$	751	$	12,923
2019		22,176		1,224		23,400
2020		27,949		1,335		29,284
2021		28,791		1,423		30,214
2022		29,485		240		29,725
2023 and thereafter		30,448		—		30,448
Total	$	151,021	$	4,973	$	155,994

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(1) The above calculation is based on the minimum volume commitment schedule (as defined in the NGL agreement) and applicable differential fees.

There have been no other material changes from the commitments disclosed in the notes to the Company’s consolidated financial statements included in our 2017 Form 10-K.