Commitments and Contingencies

Operating Leases and Other Commitments

The Company leases office space and other property and equipment under lease agreements expiring on various dates through 2020. The Company recognized expense under operating leases of approximately $6 million, $302,000, $5 million and $3 million for the year ended December 31, 2014, the periods from December 17, 2013 through December 31, 2013, and January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012, respectively.

The table below presents the Company’s future minimum payments under noncancelable operating leases and other commitments as of December 31, 2014:



	Total		2015		2016		2017		2018		2019		Thereafter
(in thousands)
Operating leases⁽¹⁾	$	13,865	$	4,384	$	3,801	$	2,258	$	1,269	$	1,174	$	979
Other commitments ⁽²⁾	5,294		2,852		2,442		—		—		—		—
Firm natural gas transportation contracts⁽³⁾	180,399		33,418		33,446		33,417		23,972		22,527		33,619
Total	$	199,558	$	40,654	$	39,689	$	35,675	$	25,241	$	23,701	$	34,598


⁽¹⁾	Operating leases relate primarily to obligations associated with the Company’s office facilities, vehicles and rail cars.


⁽²⁾	Other commitments relate primarily to cogeneration facility management services and equipment purchase obligations.


⁽³⁾	The Company enters into certain firm commitments to transport natural gas production to market and to transport natural gas for use in the Company’s cogeneration and conventional steam generation facilities. The remaining terms of these contracts range from approximately one to nine years and require a minimum monthly charge regardless of whether the contracted capacity is used or not.

East Texas Gathering System

The Company is party to certain long-term natural gas gathering agreements for its East Texas production. The agreements contain embedded leases and the transaction was accounted for as a financing obligation. The fair value of the property associated with this transaction was recorded in the amount of approximately $13 million and is being depreciated over the remaining useful life of the asset. Under the agreements, portions of the payments are recorded as gathering expense and interest expense with the balance recorded as a reduction to the financing obligation. There are no minimum payments required under these agreements.

Carry and Earning Agreement

In January 2011, the Company entered into an amendment relating to certain contractual obligations to a third-party co-owner of certain Piceance Basin assets in Colorado. The amendment waives a $200,000 penalty for each well not spud by February 2011 and requires the Company to reassign to such third party, by January 31, 2020, all of the interest acquired by the Company from the third party 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 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. Pursuant to the terms of a further amendment entered into in April 2014, if by September 30, 2015, the Company does not expend $9 million on the construction of either the extension of the road or a new road, the Company is 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. Under the terms of the 2014 amendment, this deadline is subject to further extension to no later than December 31, 2015. Due to the need to obtain regulatory approvals, among other reasons, 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 the extended deadline, 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 to the Company.

Legal Matters

Department of the Interior Notice of Proposed Debarment

In June 2012, the Company received a Notice of Proposed Debarment issued by the United States Department of the Interior (“DOI”). Pursuant to the notice, the DOI’s Office of the Inspector General proposed to debar the Company from participation in certain federal contracts and assistance activities, including oil and natural gas leases, for a period of three years. The basis for the proposed debarment relates to the Company’s purported noncompliance with Bureau of Land Management (“BLM”) regulations relating to the operation of certain equipment and the submission of related site facility diagrams in its Uinta operations. In 2011, the Company entered into a settlement agreement with the BLM and paid a $2 million civil penalty relating to the matter. The Company contested the proposed debarment and believes the matter is without merit; nevertheless, in June 2013, the Company entered into an agreement with the DOI to resolve the matter administratively through an independent compliance review. The independent compliance review has concluded and the final compliance review reports have been submitted to the DOI. The Company has been informed that the DOI intends to make follow-up inquiries to the Company in the near future, but has not received any further communications to date.

Royalty Class Action

The Company is a defendant in a certain statewide royalty class action case. The parties entered into a settlement agreement to settle past claims for approximately $2.4 million, which the Court approved on October 29, 2014. On December 17, 2014, the Company made a one-time lump sum payment of $2.4 million for damages related to production through April 30, 2014. On December 29, 2014, the Court issued an Order dismissing the matter with prejudice. Per the parties’ settlement agreement, the Company has agreed to a new methodology for calculating royalty payments beginning May 1, 2014.

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 adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.

During the year ended December 31, 2014, the periods from December 17, 2013 through December 31, 2013, and January 1, 2013 through December 16, 2013, and for the year ended December 31, 2012, the Company made no significant payments to settle any legal, environmental or tax proceedings. The Company regularly analyzes current information and accrues for probable liabilities on the disposition of certain matters as necessary. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.