Decommissioning Liability

12 Months Ended

Dec. 31, 2022

Asset Retirement Obligation Disclosure [Abstract]

(5) Decommissioning Liability

We account for our decommissioning liability under ASC 410 – Asset Retirement Obligations. Our decommissioning liability is associated with our oil and gas property and includes costs related to the plugging of wells, decommissioning of the platform and related equipment and site restoration. We review the adequacy of our decommissioning liability whenever indicators suggest that the estimated cash flows and/or timing needed to satisfy the liability have changed materially.

During 2022, we revised our decommissioning program as follows:

•

During the second quarter of 2022, we undertook an initiative to alter our decommissioning program, whereby we intend to convert the platform into an artificial reef (“reef-in-place”). The reef-in-place program would involve severing the top portion of the structure at a permitted navigation depth and placing the severed structure on the sea floor next to the base of the remaining structure. Converting to a reef-in-place program reduced the estimated costs associated with decommissioning the wells and platform, and also impacted the time required to complete the decommissioning activities.

The reduction in cost estimates under a reef-in-place program resulted in a reduction in the carrying value of our decommissioning liability and related note receivable as discussed in Note 6 - Note Receivable, as well as impacted the carrying value of our oil and gas producing assets, such that as of June 30, 2022, our decommissioning liability was reduced by $53.0 million and the related note receivable was increased by $2.6 million. In accordance with ASC 410, the carrying value of our oil and gas producing assets was reduced by $38.2 million, which represented the net book value of our oil and gas assets at June 30, 2022. In connection with these changes, we recognized a gain of approximately $17.4 million, which is included in other (gains) and losses, net in our statement of operations.

•

During the fourth quarter of 2022, information received from the operator of our oil and gas property raised concerns regarding the economic viability of the remaining well recompletions, which caused us to modify our planned well completions schedule. This change resulted in the acceleration of the estimated remaining life expectancy of the oil and gas assets. Concurrent with this ongoing analysis, the operator of our oil and gas property received a notice from the Bureau of Safety and Environmental Enforcement regarding idle wells, which was aligned with the actions we were initiating. In response, in December 2022, we revised our estimates relating to the timing and the cost of decommissioning the wells.

We now estimate all decommissioning activities, including the decommissioning of the platform, to be completed by the second quarter of 2030. Previously, we had expected final decommissioning activities to be completed by the second quarter of 2031. Due to the upward revision in decommissioning costs for the wells, and an acceleration in timing to decommission the wells and platform, at December 31, 2022, our decommissioning liability was increased by $13.8 million, the related note receivable was increased by $2.7 million and we recorded an asset retirement cost asset of $11.1 million.

The following table presents the activity during 2022 impacting our decommissioning liability, the related note receivable and oil and gas producing assets:


	Balance at December 31, 2021		2022 Activity (1)			Reef-in-place Adjustment			Year End 2022 Adjustment		Balance at December 31, 2022
Decommissioning Liability	$	190,380	$	9,500		$	(53,028	)	$	13,819	$	160,671
Note Receivable		60,588		3,823			2,581			2,687		69,679
Oil and gas producing assets, net		41,582		(2,790	)		(38,235	)		11,132		11,689

(1)

Activity during 2022 relates to accretion of the decommissioning liability, interest income on the note receivable and depletion and capital expenditures, net to the oil and gas producing assets.

The following table presents our decommissioning liability as of the periods indicated:


	December 31, 2022			December 31, 2021
Wells	$	96,171		$	97,810
Platform		64,500			92,570
Decommissioning Liability		160,671			190,380
Less: Note Receivable		(69,679	)		(60,588	)
Decommissioning Liability, net of Note Receivable	$	90,992		$	129,792

Accretion expense associated with our decommissioning liability during the Current Period, the Successor Period, the Predecessor Period and the Prior Period was $9.5 million was $9.3 million and $0.5 million, and $6.5 million, respectively.