Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.19.3.a.u2
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
The Company is involved in various claims and lawsuits incidental to its business. In the opinion of management, the ultimate liability hereunder, if any, will not have a material adverse effect on the financial position or results of operations of the Company.
The Company’s activities are subject to federal, state and local laws and regulations governing environmental quality and pollution control. Although no assurances can be made, the Company believes that, absent the occurrence of an extraordinary event, compliance with existing federal, state and local laws, rules and regulations governing the release of materials into the environment or otherwise relating to the protection of the environment are not expected to have a material effect upon the capital expenditures, earnings or the competitive position of the Company with respect to its existing assets and operations. The Company cannot predict what effect additional regulation or legislation, enforcement policies hereunder, and claims for damages to property, employees, other persons and the environment resulting from the Company’s operations could have on its activities. The table below presents total minimum commitments
associated with long-term, non-cancelable leases, drilling rig contracts and gathering, processing and transportation service agreements, which require minimum volumes of natural gas or produced water to be delivered, as of December 31, 2019.
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025 and Thereafter
 
Total
 
 
(In thousands)
Operating leases
 
$12,423
 
$8,399
 
$4,363
 
$4,209
 
$4,110
 
$17,902
 
$51,406
Drilling rig contracts (1)
 
33,441

 
3,249

 

 

 

 

 
36,690

Delivery commitments (2)
 
9,563

 
13,437

 
10,980

 
11,553

 
12,417

 
39,298

 
97,248

Produced water disposal commitments (3)
 
14,947

 
14,968

 
11,933

 
4,387

 
1,570

 
1,840

 
49,645

Total
 
$70,374
 
$40,053
 
$27,276
 
$20,149
 
$18,097
 
$59,040
 
$234,989
 
(1)
Drilling rig contracts represent gross contractual obligations and accordingly, other joint owners in the properties operated by the Company will generally be billed for their working interest share of such costs.
(2)
Delivery commitments represent contractual obligations we have entered into for certain gathering, processing and transportation service agreements which require minimum volumes of natural gas to be delivered. The amounts in the table above reflect the aggregate undiscounted deficiency fees assuming no delivery of any natural gas.
(3)
Produced water disposal commitments represent contractual obligations we have entered into for certain service agreements which require minimum volumes of produced water to be delivered. The amounts in the table above reflect the aggregate undiscounted deficiency fees assuming no delivery of any produced water.
Operating leases
As of December 31, 2019, the Company had contracts for nine horizontal drilling rigs. The contract terms will end on various dates between January 2020 and May 2021.
Other commitments
In July 2019, the Company executed a crude oil sales contact that provides dedicated capacity on a new pipeline system that originates in Midland County, Texas and will have delivery points in several locations along the Gulf Coast. The Company will have a long-term 5,000 Bbls per day commitment for the term of the agreement and will apply applicable tariff rates to those quantities. Barrels may include volumes produced by the Company and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf.
In June 2019, the Company executed a firm transportation agreement for dedicated capacity on a new pipeline system that originates in Midland, Texas and terminates in Houston, Texas. Subject to completion of the new pipeline system, which will have delivery points in several locations along the Gulf Coast, the Company will have a long-term commitment that will apply applicable tariff rates to our quantities committed that average 10,000 Bbls per day for the term of the agreement. Barrels may be transported to multiple delivery points along the Gulf Coast and may include volumes produced by the Company and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf.
In January 2019, the Company executed a crude oil sales contract that provides further dedicated capacity on several pipeline systems that will connect with a regional gathering system which currently transports oil volumes under long-term agreements from our properties in Howard and Ward Counties, Texas and will have delivery points in several locations along the Gulf Coast, providing the Company with the potential benefit of access to an international weighted average sales price. The Company will have a long-term 10,000 Bbls per day commitment for the term of the agreement, and may include volumes produced by the Company and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf.
In August 2018, the Company executed a firm transportation agreement for dedicated capacity on a new pipeline system that will connect with a regional gathering system which currently transports oil volumes under long-term agreements from our properties in Howard and Ward Counties, Texas to multiple marketing points in the Permian Basin. Subject to completion of the new pipeline system, which will have delivery points in several locations along the Gulf Coast, the Company will have a long-term commitment that will apply applicable tariff rates to our 15,000 Bbls per day commitment for the term of the agreement. Barrels may be transported to multiple delivery points along the Gulf Coast and may include volumes produced by the Company and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf.
In March 2018, the Company entered into a contract for dedicated fracturing and pump down perforating crews, which was effective on April 16, 2018 for a two-year period. The agreement was amended effective October 16, 2018 to reflect updated market conditions and to extend the contract expiration date to December 31, 2021.