Commitments and Contingencies

Operating Leases and Other Commitments

The Company leases corporate and field offices in California, Colorado and Texas under agreements expiring over the next five years. In 2006, the Company purchased an airplane for business travel which was subsequently sold and contracted under a ten year operating lease beginning December 2006. The Company also finances vehicles under operating leases, which expire over the next three years. Rent expense with respect to these lease commitments was $2.6 million for each of the years ended December 31, 2011, 2010 and 2009. The Company currently has four drilling rigs under contracts that require minimum payments for the full contract term or penalties upon early termination. All of these contracts expire during 2012. All other rigs currently performing work for the Company are on a well-by-well basis and can be released without penalty at the conclusion of drilling on the current well. The Company also has other commitments relating primarily to natural gas purchases, cogeneration facility management services and equipment rentals. Additionally, the Company enters into certain firm commitments to transport natural gas production to market and to transport natural gas to its cogeneration and conventional steam generation facilities. These commitments generally require a minimum monthly charge regardless of whether the contracted capacity is used or not.

The table below shows the Company's future minimum payments under non-cancelable operating leases and other commitments as of December 31, 2011:



(in millions)	Total		2012		2013		2014		2015		2016		Thereafter
Operating leases(1)	$	11.8	$	2.8	$	2.8	$	2.6	$	2.2	$	1.4	$	—
Drilling rig commitments(2)	7.0		7.0		—		—		—		—		—
Other commitments(3)	31.3		14.2		11.4		1.8		1.9		2.0		—
Firm natural gas transportation contracts(4)	263.5		29.7		30.2		32.7		32.6		32.5		105.8
Total	$	313.6	$	53.7	$	44.4	$	37.1	$	36.7	$	35.9	$	105.8

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(1)	Includes operating leases related to office facilities, vehicles and aircraft.


(2)	Excludes obligations related to rigs drilling on a well-by-well basis that can be released after drilling the current well without penalty.


(3)	Includes primarily obligations related to natural gas purchases, cogeneration facility management services and equipment rentals.


(4)	Includes a transportation agreement with Questar Pipeline Company for an average of 6,200 MMBtu/D of firm transportation over a period of eight years, based on the expectation that the expansion of the Chipeta Processing LLC natural gas plant expansion will be completed and transportation under this contract will begin July 1, 2012.

Uinta Crude Oil Sales Contract

The Company is a party to a crude oil sales contract through June 30, 2013 with a refiner for the purchase of a minimum of 5,000 Bbl/D of its Uinta light crude oil. Pricing under the contract, which includes transportation and gravity adjustments, is at a fixed percentage of WTI. While the contractual differentials under this contract may be less favorable at times than the posted differential, demand for the Company's 40 degree black wax (light) crude oil can vary seasonally and this contract provides a stable outlet for the Company's crude oil. Gross oil production from the Company's Uinta properties averaged approximately 3,390 Bbl/D in 2011. Due to the possibility of refinery constraints in the Utah region, it is possible that the loss of the Company's crude oil sales customer in Utah could impact the marketability of a portion of the Company's Utah crude oil volumes. Please see Item 1A. Risk Factors—"We may not be able to deliver minimum crude oil volumes required by our sales contract."

E. Texas Gathering System

In July 2009, the Company closed on the financing of its E. Texas natural gas gathering system for $18.4 million in cash. The Company entered into concurrent long-term natural gas gathering agreements for the E. Texas production which contained an embedded lease. The transaction was treated as a financing obligation. Accordingly, the $16.7 million net book value of the property is being depreciated over the remaining useful life of the asset and the cash received of $18.4 million was recorded as a financing obligation. A portion of payments under the agreements are recorded as gathering expense and a portion as interest expense, with the balance being recorded as a reduction to the financing obligation. There are no minimum payments required under these agreements. For the years ended December 31, 2011, 2010 and 2009 the Company incurred $5.3 million, $6.7 million and $2.0 million, respectively, under the agreements.

Carry and Earning Agreement

On January 14, 2011, the Company entered into an amendment relating to certain contractual obligations to a third party co-owner of certain Piceance assets in Colorado. The amendment waives the $0.2 million penalty for each well not spud by February 2011 and requires the Company to reassign to such co-owner, by January 31, 2020, all of the interest acquired by the Company from the co-owner in each 160-acre tract in which the Company has not drilled and completed a well that is producing or capable of producing from a designated formation, or deeper formation, on January 1, 2020. The amendment also requires the Company to pay the first $9.0 million of costs incurred in connection with the construction of either an extension of the existing access road or a new access road, including the third party's 50% share. If by June 30, 2013 (which date may be extended until December 31, 2014 if road construction has commenced by June 30, 2013), the Company has not expended $9.0 million ($4.5 million of which would otherwise be such third party's responsibility) in road construction costs, then it will be obligated to pay the third party 50% of the difference between $12 million and the actual amount expended on road construction as of such date. Due to the need to obtain regulatory approvals, the Company has not yet commenced construction of either an extension of the existing access road or a new access road and may be unable to do so by June 30, 2013, thus triggering the payment obligation to the third party.

Environmental Matters

The Company has no material accrued environmental liabilities for its sites, including sites in which governmental agencies have designated the Company as a potentially responsible party, because it is not probable that a loss will be incurred and the minimum cost and/or amount of loss cannot be reasonably estimated. However, because of the uncertainties associated with environmental assessment and remediation activities, future expense to remediate the currently identified sites, and sites identified in the future, if any, could be incurred. Management believes, based upon current site assessments, that the ultimate resolution of any matters will not result in material costs incurred.

Legal Matters

COGCC Order — On April 21, 2011, the Company received a proposed Order Finding Violation from the Colorado Oil and Gas Conservation Commission (COGCC) alleging that certain releases in late 2007 from a lined reserve pit located on a well pad in western Colorado violated COGCC regulations. Shortly thereafter, the Company entered into negotiations with the COGCC. While the Company denies that it violated any COGCC regulations in connection with the releases, on June 27, 2011, the COGCC approved and the Company later signed an Administrative Order on Consent under which the Company would pay $100,000, and fund a mutually acceptable public project in the amount of $73,000, in full satisfaction of the matter. The Company recorded these amounts in the second quarter of 2011 and paid $100,000 in July 2011. The Company expects to fund the mutually acceptable project during the first half of 2012.

BLM Settlement — On March 28, 2011, the Company entered into a settlement agreement with the Bureau of Land Management (BLM) resolving all claims by the BLM that the Company did not comply with BLM regulations relating to the operation and position of certain valves, and the submission of related site facility diagrams, in its Uinta operations. The settlement agreement confirmed that the Company promptly remediated the alleged noncompliance upon learning of it, and cooperated with the BLM's investigation, and that there is no evidence of any senior Company management knowledge of the alleged noncompliance, or of any environmental harm or loss of oil or royalty revenue resulting from such alleged noncompliance. The Company paid a $2.1 million civil penalty to the BLM under the settlement agreement in April 2011.

Royalty Payments — Certain of the Company's royalty payment calculations are being disputed. The Company believes that its royalty calculations are in accordance with applicable leases and other agreements, as well as applicable law. However, the disputed amounts that the Company may be required to pay are up to approximately $7.1 million.

Other — The Company is involved in various other lawsuits, claims and inquiries, most of which are routine to the nature of its business. In the opinion of management, the resolution of these matters will not have a material effect on its financial position, results of operations or operating cash flows.