COMMITMENTS AND CONTINGENCIES

The Company could be subject to various possible loss contingencies which arise primarily from interpretation of federal and state laws and regulations affecting the natural gas and crude oil industry. Such contingencies include differing interpretations as to the prices at which natural gas and crude oil sales may be made, the prices at which royalty owners may be paid for production from their leases, environmental issues and other matters. Management believes it has complied with the various laws and regulations, administrative rulings and interpretations.

Lease Commitments

The following is a schedule of minimum future lease payments with commitments that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2018:



Year Ending December 31,	Drilling Rig Commitments		Sand Supply Agreement		Office and Equipment Leases
	(in thousands)
2019	$	18,976	9,000		$	9,019
2020	414		9,000		3,827
2021	—		9,000		1,452
2022	—		9,000		583
2023	—		2,250		—
Thereafter	—		—		—
Total	$	19,390	$	38,250	$	14,881

The Company leases office space in Oklahoma City, Oklahoma from an unrelated third party. Amounts prior to January 1, 2018, include rent expense related to the Company’s corporate office located in the Fasken Center in Midland, Texas. On January 31, 2018, the Company completed its acquisition of the Fasken Center office buildings.

The following table presents rent expense for the years ended December 31, 2018, 2017 and 2016.



	Year ended December 31,
	2018		2017		2016
	(in thousands)
Rent Expense	$	751	$	2,412	$	1,961

Drilling contracts

As of December 31, 2018, the Company had entered into drilling rig contracts with various third parties in the ordinary course of business to ensure rig availability to complete the Company’s drilling projects. These commitments are not recorded in the accompanying consolidated balance sheets. Future commitments as of December 31, 2018 total approximately $19.4 million.

Agreement with Trafigura Trading LLC

The Company has entered into a firm commitment oil purchase agreement with Trafigura Trading LLC (“Trafigura”), in which it agreed to sell and deliver an average of 25,000 barrels per day of Midland Sweet Crude Oil (WTI) to Trafigura during the term of the agreement. Under this agreement, which has a seven-year term beginning on August 1, 2018, the price per barrel of oil paid to the Company by Trafigura is based on the average of the published settlement quotations for NYMEX CMA, as adjusted for different delivery methods and periods. If during the term of the agreement the Company fails to deliver the required quantities of oil for any month other than for specified force majeure events, the Company has agreed to pay Trafigura a deficiency payment equal to any unfavorable difference between the contract price and the spot price, multiplied by the deficiency volume.

Agreement with Shell Trading (US) Company

The Company was a party to a five-year oil purchase agreement with Shell Trading (US) Company that expired on September 30, 2018. In December 2018, the Company entered into a new oil purchase agreement with Shell Trading (US) Company in which Shell Trading (US) Company agreed to transport crude petroleum it purchases from the Company over the Epic Crude Pipeline, with which the Company has an agreement for the transportation of a maximum quantity of 50,000 barrels of crude petroleum per day. The Company’s agreement with Shell Trading (US) Company provides for different purchase obligations during the pre-commencement and service commencement periods for the Epic Crude Pipeline, and provides for a three-year term beginning on the service commencement date for the Epic Crude Pipeline. Shell Trading (US) Company has the option to extend its purchase obligations for up to two one-year terms. The Company’s delivery obligations during the pre-commencement terms range from 30,000 to 40,000 barrels per day and, during the full service term, its maximum delivery obligation is 50,000 barrels per day, determined based on the amount of crude petroleum the Company is obligated to transport on the EPIC Crude Pipeline under its transportation agreement with such pipeline. During different pre-commencement periods, Shell Trading (US) Company has agreed to pay the Company the price per barrel of oil based on the arithmetic average of the daily settlement price for “Light Sweet Crude Oil” Prompt Month future contracts reported by the NYMEX over the one-month period, subject to agreed adjustments, or a specified price. During the full service term, the price per barrel of oil payable by Shell Trading (US) Company to the Company is subject to negotiation.

Agreement with Vitol Inc.

The Company has also entered into an oil purchase agreement with Vitol Inc. (“Vitol”). The agreement provides for different delivery obligations before and after the Gray Oak Pipeline is in full service, ranging from 23,750 barrels per day during the period from November 1, 2018 to September 30, 2019, to 50,000 barrels per day (up to a maximum of 100,000 barrels per day) once the Gray Oak Pipeline is in full service, determined based on the amount of crude petroleum the Company is obligated to transport on the Gray Oak Pipeline under its transportation agreement with such pipeline. The agreement with Vitol provides for a seven-year term commencing on the date when the Gray Oak Pipeline is in full service. The agreement contemplates variable prices depending on the delivery periods specified in the agreement. The agreement also provides for a five-year term commencing on the date the EPIC Crude Pipeline is ready to perform transportation services from the EPIC Midway Terminal, during which the Company agreed to sell crude petroleum to Vitol opportunistically at negotiated prices. If the Company fails to deliver any required quantities of oil for any month other than for specified force majeure events, it has agreed to pay Vitol a deficiency payment equal to any unfavorable difference between the contract price and the price paid by Vitol to third parties to replace the deficiency quantity, multiplied by the deficiency quantity, subject to certain other adjustments.

Defined contribution plan

The Company sponsors a 401(k) defined contribution plan for the benefit of substantially all employees at their date of hire. The plan allows eligible employees to contribute up to 100% of their annual compensation, not to exceed annual limits established by the federal government. The Company makes matching contributions of up to 6% of an employee’s compensation and may make additional discretionary contributions for eligible employees. Employer contributions vest immediately. For the years ended December 31, 2018, 2017 and 2016 the Company paid $2.1 million, $1.8 million and $1.2 million, respectively, in contributions to the plan.