Annual report pursuant to Section 13 and 15(d)

Other

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12 Months Ended
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
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Other

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.

Global Settlement with Joint Interest Partner: During 2011, the Company and a joint interest partner entered into a settlement agreement related to various disputes. All matters were settled and as result of the settlement agreement the Company received an interest in other specialized deep water property and equipment. The Company recognized a gain of $5,041 as a result of the settlement and classified the property and equipment received as held for sale assets, included within other property and equipment since the Company had no use for this type of equipment in its operations. Since the settlement with its joint interest partner, the Company has sold a portion of these assets and has continued to actively market the remaining assets throughout 2012 and 2013. During 2012, after selling assets valued at $527 during the year, the Company determined that certain equipment components were not usable without additional rework and thus recorded an impairment charge to its Statement of Operations of $1,177 during 2012. During 2013, after selling assets value at $114 during the year, the Company has made a decision to abandon the equipment. As such the Company recorded an impairment charge of $1,707 to its Statement of Operations, representing the remaining value of this equipment.

Operating Leases: In April 2012, the Company took delivery of a drilling rig (the “Cactus 1 Rig”) for a term of two years, which it subsequently renewed on March 6, 2014 for an additional two year term ending April 2016. On August 1, 2013, the Company contracted a second horizontal drilling rig (the “Patterson Rig”) for a one-year term, though the Company provided notice on February 17, 2014 that it will cancel its Patterson rig contract on or about March 17, 2014. Under the early termination provisions of the agreement, estimated termination payments for this rig will be approximately $2,055 in 2014. Should the lessor be able to re-charter the rig, the termination payments would be reduced. To replace the Patterson Rig, the Company contracted a replacement rig (the “Cactus 2 Rig”) for a term of two years, which is scheduled to commence operations on April 1, 2014. Similar to the Patterson Rig, the Cactus 1 and 2 Rig lease agreements also include early termination provisions that would reduce the minimum rentals under the agreement, assuming the lessor is unable to re-charter the rig and staffing personnel to another lessee. Lease costs recorded during 2013 were $12,860. Lease payments as of December 31, 2013 will approximate $13,954, $9,308 and $2,295 in 2014, 2015 and 2016, respectively. Including the additional lease commitments executed subsequent to December 31, 2013, the Company’s drilling rig lease commitments as of March 10, 2014 are $19,732, $18,250 and $4,500 in 2014, 2015, and 2016, respectively.

Property Acquisitions and Dispositions

Acquisitions

During the second quarter of 2013, the Company acquired approximately 2,468 gross (2,186 net) acres in Reagan and Upton Counties, Texas, which is located in the southern portion of the Midland Basin and which is prospective for both horizontal and vertical drilling. The acquisition also included seven gross vertical wells and 1,301 barrels of oil equivalent proved reserves. The purchase price of $11,000 was funded using a portion of the proceeds from the preferred stock offering (discussed in Note 9).

During the first quarter of 2012, the Company acquired approximately 16,233 gross (14,653 net) acres in Borden County, which is located in the northern Midland basin. The northern Midland basin has had limited drilling activity compared with the southern Midland basin (where our current production is located), increasing the economic risk related to these drilling activities. The purchase price of $14,538 was funded from existing cash balances. During the third quarter of 2012, we acquired an additional 8,095 gross acres (6.964 net) in this area for a total consideration of $4,835.

During the second quarter of 2012, the Company signed a purchase and sale agreement to acquire 2,319 gross (1.762 net) acres in southern Reagan County, Texas for a total purchase price of $12,012, which was financed with a draw on the Credit Facility. The transaction had an effective date of May 1, 2012 and closed on July 5, 2012.

Dispositions

During the fourth quarter of 2013, the Company closed on the sale of its 15.0% working interest in the Medusa field (Mississippi Canyon blocks 582 and 538), our 10.0% membership interest in Medusa Spar LLC, and substantially all of our remaining Gulf of Mexico shelf properties. The Company sold its interest in Medusa to W&T, an unrelated third-party, for a total net cash consideration of approximately $88,000 after customary purchase price adjustments. Also during the fourth quarter of 2013, the Company closed on the sale of its 69% interest in the Swan Lake field for $2,000. This was the Company’s only field in the Haynesville shale. Consistent with the Company’s accounting policy discussed in Note 2, the proceeds from these sales were accounted for as a reduction to capitalized costs as the sale did not significantly alter the relationship between capitalized costs and proved reserves.

Effective December 28, 2012, the Company closed on the sale of its 11.25% working interest in the Habanero field (Garden Banks Block 341). The Company sold its interest in Habanero to Shell Offshore Inc., a subsidiary of Royal Dutch Shell Plc, for an estimated net cash consideration of $39,410 after customary purchase price adjustments. As noted above, the proceeds from this sale were accounted for as a reduction to capitalized costs as the sale did not significantly alter the relationship between capitalized costs and proved reserves.