COMMITMENTS AND CONTINGENCIES

Office Lease

The Company’s corporate headquarters are located at One Lincoln Centre, 5400 LBJ Freeway, Suite 1500, Dallas, Texas 75240. In June 2015, the Company entered into the seventh amendment to its office lease agreement. This amendment increased the square footage of its corporate headquarters to approximately 100,000 square feet effective January 1, 2016. The lease expires during 2026. The base rate escalates during the course of the lease; however, the Company recognizes rent expense ratably over the term of the lease.

From time to time, the Company also enters into leases for field offices in locations where it has active field operations. These leases are typically for terms of less than five years and are not considered principal properties.

The following is a schedule of future minimum lease payments required under all office lease agreements as of December 31, 2015 (in thousands).



Year Ending December 31,	Amount
2016	$	2,017
2017	2,432
2018	2,488
2019	2,528
2020	2,602
Thereafter	14,995
Total	$	27,062

Rent expense, including fees for operating expenses and consumption of electricity, was $1.7 million, $0.9 million and $0.8 million for 2015, 2014 and 2013, respectively.

Natural Gas and NGL Processing and Transportation Commitments

Effective September 1, 2012, the Company entered into a firm five-year natural gas processing and transportation agreement whereby the Company committed to transport the anticipated natural gas production from a significant portion of its Eagle Ford acreage in South Texas through the counterparty’s system for processing at the counterparty’s facilities. The agreement also includes firm transportation of the natural gas liquids extracted at the counterparty’s processing plant downstream for fractionation. After processing, the residue natural gas is purchased by the counterparty at the tailgate of its processing plant and further transported under its natural gas transportation agreements. The arrangement contains fixed processing and liquids transportation and fractionation fees, and the revenue the Company receives varies with the quality of natural gas transported to the processing facilities and the contract period.

Under this agreement, if the Company does not meet 80% of the maximum thermal quantity transportation and processing commitments in a contract year, it will be required to pay a deficiency fee per MMBtu of natural gas deficiency. Any quantity in excess of the maximum MMBtu delivered in a contract year can be carried over to the next contract year for purposes of calculating the natural gas deficiency. During certain prior periods, the Company had an immaterial natural gas deficiency, and the counterparty to this agreement waived the deficiency fee. The Company paid approximately $5.5 million and $5.8 million in processing and transportation fees under this agreement during the years ended December 31, 2015 and 2014, respectively. The future undiscounted minimum payments under this agreement as of December 31, 2015 are $1.8 million in 2016 and $1.2 million in 2017.

As part of the sale of the Loving County System (see Note 5), the Company entered into a 15-year fixed-fee natural gas gathering and processing agreement whereby the Company committed to deliver the anticipated natural gas production from a significant portion of its Loving County, Texas acreage in West Texas through the counterparty’s gathering system for processing at the counterparty’s facility. Under this agreement, if the Company does not meet the volume commitment for transportation and processing at the facility in a contract year, it will be required to pay a deficiency fee per MMBtu of natural gas deficiency. At the end of each year of the agreement, the Company can elect to have the previous year’s actual transportation and processing volumes be the new minimum commitment for each of the remaining years of the contract. As such, the Company has the ability to unilaterally reduce the transportation and processing commitment if the Company’s production in the Loving County area is less than the Company’s currently projected production. If the Company ceased operations in this area at December 31, 2015, the total deficiency fee required to be paid would be approximately $9.6 million. In addition, if the Company elects to reduce the transportation and processing commitment in any year, the Company has the ability to elect to increase the committed volumes in any future year to the originally agreed transportation and processing commitment. Any quantity in excess of the volume commitment delivered in a contract year can be carried over to the next contract year for purposes of calculating the natural gas deficiency. The Company paid approximately $1.8 million in processing and transportation fees under this agreement during the year ended December 31, 2015. The Company can elect to either sell the residue gas to the counterparty at the tailgate of its processing plant or have the counterparty deliver to the Company the residue gas in-kind to be sold to third parties downstream of the plant.

Other Commitments

The Company does not own or operate its own drilling rigs, but instead enters into contracts with third parties for such drilling rigs. These contracts establish daily rates for the drilling rigs and the term of the Company’s commitment for the drilling services to be provided, which have typically been for one year or less, although the Company has entered into longer-term contracts in order to secure new drilling rigs equipped with the latest technology in plays that were until recently experiencing heavy demand for drilling rigs. The Company would incur a termination obligation if the Company elected to terminate a contract and if the drilling contractor were unable to secure replacement work for the contracted drilling rigs or if the drilling contractor were unable to secure replacement work for the contracted drilling rigs at the same daily rates being charged to the Company prior to the end of their respective contract terms. The Company’s undiscounted minimum outstanding aggregate termination obligations under its drilling rig contracts were approximately $43.5 million at December 31, 2015.

The Company entered into an agreement with a third party for the engineering, procurement, construction and installation of a natural gas processing plant in the Rustler Breaks prospect area in Eddy County, New Mexico in late 2015. This plant is expected to process a portion of the Company’s natural gas produced from certain of its wells in the Delaware Basin, as well as third-party natural gas once the plant is completed. Total commitments under this contract are $28.5 million and the Company made payments totaling $7.0 million during the year ended December 31, 2015. The plant is scheduled to be completed and placed in service in the third quarter of 2016.

At December 31, 2015, the Company had outstanding commitments to participate in the drilling and completion of various non-operated wells. If all of these wells are drilled and completed as proposed, the Company’s minimum outstanding aggregate commitments for its participation in these non-operated wells were approximately $5.7 million at December 31, 2015. The Company expects these costs to be incurred within the next year.

Legal Proceedings

The Company is a defendant in several lawsuits encountered in the ordinary course of its business. While the ultimate outcome and impact to the Company cannot be predicted with certainty, in the opinion of management, it is remote that these lawsuits will have a material adverse impact on the Company’s financial condition, results of operations or cash flows.