We follow the successful efforts method of accounting for our interests in oil and gas properties. Under the successful efforts method, the costs of successful wells and leases containing productive reserves are capitalized. Costs incurred to drill and equip development wells, including unsuccessful development wells, are capitalized. Costs incurred relating to unsuccessful exploratory wells are charged to expense in the period in which the drilling is determined to be unsuccessful.

Exploration and Other

As of June 30, 2012, we capitalized approximately $32.8 million of costs associated with ongoing exploration and/or appraisal activities, including $26.9 million associated with our Danny II exploratory well at Garden Banks Block 506 (see below). Such capitalized costs may be charged against earnings in future periods if management determines that commercial quantities of hydrocarbons have not been discovered or that future appraisal drilling or development activities are not likely to occur.

The following table details the components of exploration expense for the three- and six-month periods ended June 30, 2012 and 2011:



		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2012			2011		2012			2011

Delay rental and geological and geophysical costs	$	1,146		$	1,299	$	1,757		$	1,654
Impairment of unproved properties ⁽¹⁾		—			6,640		144			6,640
Dry hole expense		(54	)		—		(55	)		(9	)
Total exploration expense	$	1,092		$	7,939	$	1,846		$	8,285

(1) The amount recorded in the second quarter of 2011 reflects costs associated with a deepwater lease in which the term expired.

Danny II

We hold a 50% interest in the Danny II prospect at Garden Banks Block 506. The Danny II exploration well was drilled to a total depth of approximately 14,750 feet, in water depths of approximately 2,800 feet. Based on preliminary data, the well has encountered hydrocarbon pay and is expected to be predominately an oil producer. The well is currently being completed and is expected to be developed via a subsea tie back system to our 70% owned and operated East Cameron Block 381 platform.

Impairments

We did not record any oil and gas property impairments during the three-month period ended June 30, 2012. We recorded impairment charges totaling $11.6 million associated with five of our Gulf of Mexico oil and gas properties during the three-month period ended June 30, 2011. There were no proved property impairments in the first quarter of 2012 or 2011.

Asset retirement obligations

The following table describes the changes in our asset retirement obligations (both current and long-term) since December 31, 2011 (in thousands):


Asset retirement obligations at December 31, 2011 ..............	$	254,391
Liability incurred during the period........................................		115
Liability settled during the period.........................................		(80,166	)
Other revisions in estimated cash flows ⁽¹⁾............................		23,671
Accretion expense (included in depreciation and amortization)......		6,854
Asset retirement obligations at June 30, 2012.......................	$	204,865

(1) The increased amount of these liabilities includes revisions to both non-producing and producing oil and gas properties. Increases to liabilities associated with non-producing properties include a corresponding cost of sales expense charge within our consolidated condensed statements of operations and comprehensive income while changes in estimates for producing properties are recorded as an increase to the related oil and gas properties property and equipment carrying costs included within our consolidated condensed balance sheet.

In the second quarter of 2012, we recorded an expense charge of $6.9 million related to our only non-domestic oil and gas property, which is located in the North Sea. The charge reflects the increase in our estimated costs to complete our abandonment activities at this non-producing field. These activities are ongoing and are scheduled to be completed in the third quarter of 2012. In the second quarter of 2011, we recorded $11.1 million of expense charges to increase our asset retirement obligations related to five non-producing fields, including $4.1 million related to our oil and gas property located in the North Sea.

Insurance

On June 30, 2012, we obtained a hurricane catastrophic bond for the period from July 1, 2012 to June 30, 2013 and made a payment of $10.6 million. We will charge approximately $8.4 million of this payment to insurance expense in the third quarter of 2012 and $2.0 million in the fourth quarter of 2012 based upon the bond’s contractual intrinsic value at the end of each of those quarterly periods.