Note 13 — Oil and Gas Properties

Results of Discontinued Operations

In February 2013, we sold ERT for $624 million plus additional consideration in the form of overriding royalty interests in ERT’s Wang well and certain exploration prospects. As a result, we have presented the historical operating results of our former Oil and Gas segment as discontinued operations in the accompanying consolidated financial statements.

The following summarized financial information relates to ERT, which is reported as “Income (loss) from discontinued operations, net of tax” in the accompanying consolidated statements of operations (in thousands):


		Year Ended December 31,
		2013 (1)		2012

Revenues	$	48,847	$	557,231
Costs:
Production (lifting) costs		16,017		164,663
Hurricane repair expense		-		662
Exploration expenses		3,514		3,295
Depreciation, depletion, amortization and accretion		1,226		158,284
Proved property impairment and abandonment (2)		(152)		151,045
Loss on sale of oil and gas properties		-		1,714
Hedge ineffectiveness and non-hedge gain on commodity derivative contracts		-		(5,550)
Selling, general and administrative expenses		1,229		17,823
Net interest expense and other (3)		2,732		28,191
Total costs		24,566		520,127
Pretax income from discontinued operations		24,281		37,104
Income tax provision		8,499		13,420
Income from operations of discontinued operations		15,782		23,684
Loss on sale of business, net of tax		(14,709)		-
Income from discontinued operations, net of tax	$	1,073	$	23,684

(1) Results for 2013 reflect the operating results from January 1, 2013 through February 6, 2013 when ERT was sold. There were no material results of operations for our former oil and gas segment subsequent to the sale of ERT.

(2) Results for 2012 include a charge of $138.6 million to reduce our carrying amount of ERT to its estimated fair value less costs to sell.

(3) Net interest expense of $2.7 million and $27.7 million, respectively, for the years ended December 31, 2013 and 2012 was allocated to ERT and primarily consisted of interest associated with indebtedness directly attributed to the substantial oil and gas acquisition made in 2006. This includes interest related to debt required to be repaid upon the disposition of ERT.

Revenue Recognition for Royalty Interests

Revenues from royalty interests are recognized according to monthly oil and gas production on an entitlement basis. Revenues for royalty interests are reflected in “Other income – oil and gas” in the accompanying consolidated statements of operations.

United Kingdom Property

Since 2006, we have maintained an ownership interest in the Camelot field, located offshore in the North Sea. This property was not included in the sale of ERT. Modifications to U.K. regulations governing such operations required us to reassess our existing abandonment plan and cost estimates in 2011. The results of this review concluded that the scope of work to be performed in the abandoning of the wells in the field would be significantly expanded and as a result our cost estimates significantly increased. Based on our abandonment plan in accordance with applicable regulations in the United Kingdom, we recorded $15.5 million of additional charges to expense in 2012 to reflect increases in our estimated costs to complete our abandonment activities at Camelot, including the removal of certain environmentally sensitive materials. At December 31, 2012, the recorded asset retirement obligation for the Camelot field was $2.9 million.

During 2013, we recorded a $1.6 million charge reflecting the estimated final costs to complete the abandonment of Camelot. We completed our reclamation activities for this offshore property in 2013, including removing and appropriately disposing of all the related structures, and the plugging and abandoning of all the wells associated with the property. At December 31, 2014 and 2013, the remaining asset retirement obligation related to the regulatory compliance process was $0.6 million and $1.1 million, respectively.

The operating results and financial position associated with our U.K. property did not qualify for discontinued operations accounting treatment as this property was not classified as held for sale, and thus are reflected as continuing operations in our consolidated financial statements for all periods presented. Other than the impairment charges and asset retirement costs described above, the operating results associated with the Camelot field were immaterial for all periods presented in this Annual Report.

Separately, we retained the reclamation obligations associated with one property located in the Gulf of Mexico pursuant to the terms of the ERT sale transaction. During 2013, we paid $5.2 million for our pro-rata share of the costs to complete the reclamation of this property. For the year ended December 31, 2014, we recorded a $7.2 million insurance reimbursement related to asset retirement work previously performed on this property.