Commitments and Contingencies

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Drilling and Completion Commitments

As of March 31, 2015, we had contractual commitments for three drilling rigs with terms expiring in July 2015, September 2015 and February 2016, respectively. The minimum commitment under these agreements is $14.6 million for the remaining three quarters of 2015 and $1.1 million in 2016. In addition, we have a commitment to purchase certain coil tubing services that expires in December 2015. The minimum commitment for the remaining three quarters of 2015 under this agreement is $4.8 million. The drilling rig and coil tubing services agreements include early termination provisions that would require us to pay penalties if we terminate the agreements prior to the end of their scheduled terms. The amount of penalty is based on the number of days remaining in the contractual term. As of March 31, 2015, the penalty amount would have been $16.2 million had we terminated our agreements on that date.

Firm Transportation Commitments

We have entered into contracts that provide firm transportation capacity rights for specified volumes per day on various pipeline systems with remaining terms that range from less than one to 13 years. The contracts require us to pay transportation demand charges regardless of the amount of pipeline capacity we use. The minimum commitment under these agreements is $1.5 million for the the remaining three quarters of 2015 and approximately $1.1 million per year through 2028. We may sell excess capacity to third parties at our discretion.

Gathering and Intermediate Transportation Commitments

We have entered into a long-term agreement that provides natural gas gathering, compression and gas lift services for a substantial portion of our natural gas production in the South Texas region through 2038. The agreement requires us to make certain minimum fee payments regardless of the volume of natural gas production for the first three years of the term. The minimum fee requirement under this agreement is $3.2 million for the remaining three quarters of 2015 and $5.0 million in 2016.

As discussed in Note 3, we entered into long-term agreements that provide gathering and intermediate pipeline transportation services for a substantial portion of our crude oil and condensate production in the South Texas region. Our obligations under the agreements are expected to begin in the fourth quarter of 2015 when construction of the system is completed. The agreements require us to commit certain minimum volumes of crude oil production for the first ten years of the agreements’ terms, which will result in minimum fee requirements of approximately $13.7 million on an annual basis.

Legal and Regulatory

We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, our management believes that these claims will not have a material effect on our financial position, results of operations or cash flows. During 2010, we established a $0.9 million reserve for a litigation matter pertaining to certain properties that remained outstanding as of March 31, 2015. In March 2015, we established an additional $0.3 million reserve for litigation attributable to certain other properties that we previously sold. As of March 31, 2015, we also had AROs of approximately $6.0 million attributable to the plugging of abandoned wells.