Property, Plant And Equipment And Asset Retirement Obligations

12 Months Ended

Dec. 31, 2013

Property, Plant And Equipment And Asset Retirement Obligations [Abstract]

Property, Plant And Equipment And Asset Retirement Obligations

5. Property, Plant and Equipment and Asset Retirement Obligations

Property, plant and equipment consisted of the following at December 31, 2013 and 2012:


		December 31,
		2013		2012

Oil and natural gas properties (full cost method):
Properties being amortized	$	1,432,310	$	1,340,650
Properties not subject to amortization		45,752		81,292
Total oil and natural gas properties		1,478,062		1,421,942
Less accumulated depreciation, depletion and amortization		(1,190,944)		(767,674)
Net oil and gas properties		287,118		654,268

Land		1,025		1,025
Buildings and improvements		6,492		6,406
Office equipment and software		6,246		4,862
Leased equipment		345		345
Furniture and fixtures		830		731
Total		14,938		13,369
Less accumulated depreciation		(7,686)		(6,598)
Net capitalized costs		7,252		6,771
Capitalized assets, net	$	294,370	$	661,039

The Company utilizes useful lives of 31.5 years for buildings and improvements, 3 to 5 years for office equipment and software, 2 to 5 years for leased equipment and 7 years for furniture and fixtures when calculating depreciation.

Oil and Gas Properties

The Company’s ceiling test computation for the fourth quarter of 2013 resulted in a $59.1 million write-down and was based on twelve-month average prices of $93.42 per barrel of oil, plus adjustments by lease for quality, transportation fees, and regional price differentials and $3.67 per MMBtu of natural gas, plus adjustments by lease for energy content, transportation fees, and regional price differentials. The Company’s ceiling test computation for the third quarter of 2013 resulted in a $276.9 million write-down and was primarily a result of the downward revisions to eliminate the Ewing Banks 920 (“EB 920” or “Flatt’s Guitar”) Project proved undeveloped reserves. During September 2013, the Company determined that it could not meet the financial certifications required to obtain permits to develop its offshore EB 920 Project in the Gulf of Mexico, due in large part to the substantially increased Worst Case Discharge (“WCD”) assumptions imposed by the Bureau of Ocean Energy Management (“BOEM”). As a result, the proved undeveloped reserves associated with the EB 920 Project no longer met the requirements of reasonable certainty to remain booked as proved reserves at the end of the third quarter of 2013. These write-downs were recorded in Depreciation, depletion and amortization in the consolidated statement of operations. For the year ended December 31, 2012, the Company’s ceiling test computation resulted in a write-down of $37.0 million and was based on twelve-month average prices of $91.21 per barrel of oil, plus adjustments, and $2.76 per MMBtu of natural gas, plus adjustments. The write-down of $37.0 million was recorded in Depreciation, depletion and amortization in the consolidated statement of operations. For the year ended December 31, 2011, the Company’s ceiling test computation did not result in a write-down and was based on twelve-month average prices of $92.71 per barrel of oil, plus adjustments, and $4.12 per MMBtu of natural gas, plus adjustments.

Sale of Oil and Gas Properties

During the fourth quarter of 2013, the Company completed asset sales totaling $51.6 million to an unrelated third party. The Company sold approximately 62,000 net acres in oil, gas and/or mineral leases located in Texas and Colorado for $41.8 million. The Company also sold approximately 34,000 net acres in oil, gas and/or mineral leases located in Oklahoma for $9.8 million. The Oklahoma acreage sold included 3.6% of the Company’s total proved reserves at December 31, 2012. These amounts were recorded as reductions to net oil and gas properties with no impact on the statement of operations because the sales did not significantly alter the relationship between capitalized costs and proved reserves.

During the first quarter of 2013, the Company sold a 50% working interest in undeveloped acreage onshore Texas to an unrelated third party for $17.3 million. The Company will also receive a $17.3 million net carry from this unrelated third party. The sale was recorded as a reduction to our net oil and gas properties on the accompanying consolidated balance sheets, with no impact on the statement of operations because the sale did not significantly alter the relationship between capitalized costs and proved reserves. As of December 31, 2013, the Company had received $9.8 million of the carry from the unrelated third party. Of this amount, $6.0 million of drilling costs had been incurred as of December 31, 2013, and $3.8 million was recorded in Advances from joint interest partners on the consolidated balance sheet.

During the fourth quarter of 2012, the Company sold approximately 40,000 acres in Oklahoma to a former joint venture partner. The sales price was approximately $10.0 million and was recorded as a reduction to our net oil and gas properties on the accompanying consolidated balance sheets, with no impact on the statement of operations because the sale does not significantly alter the relationship between capitalized costs and proved reserves.

During the third quarter of 2012, the Company sold approximately 15,000 net acres in oil, gas and/or mineral leases and a total of approximately 56,000 net acres, which includes options in oil, gas and/or mineral leases, located in Texas and Louisiana and a well and related equipment located in Louisiana, along with all of our contracts and agreements related to this property to an unrelated third party. The sales price was approximately $14.0 million and was recorded as a reduction to net oil and gas properties on the accompanying consolidated balance sheets, with no impact on the statement of operations because the sale does not significantly alter the relationship between capitalized costs and proved reserves.

During the second quarter of 2012, the Company sold a wellbore and production facility in Louisiana state waters to an unrelated third party. The sales price was approximately $2.0 million and was recorded as a reduction to our net oil and gas properties on the accompanying consolidated balance sheets, with no impact on the statement of operations because the sale does not significantly alter the relationship between capitalized costs and proved reserves.

During the second quarter of 2011, the Company sold approximately 16,000 acres onshore Mississippi to an unrelated third party oil and gas company. The sales price was approximately $2.2 million and was recorded as a reduction to our net oil and gas properties on the accompanying consolidated balance sheets, with no impact on the statement of operations because the sale does not significantly alter the relationship between capitalized costs and proved reserves.

Asset Retirement Obligations

The change in the Company’s asset retirement obligations (ARO) is set forth below:


In thousands
Balance of ARO as of January 1, 2012	$	26,788
Accretion expense		1,362
Additions		2,301
Settlement of ARO		(827)
Changes in ARO estimate		9,749
Balance of ARO as of December 31, 2012		39,373
Accretion expense		1,467
Additions		4,222
Settlement of ARO		(4,489)
Settlement of ARO through sale of properties		(117)
Changes in ARO estimate		2,771
Balance of ARO as of December 31, 2013	$	43,227

The change in estimate during 2013 is primarily the result of reductions in reserve lives of certain offshore federal wells that have higher AROs than onshore properties, resulting in an acceleration of recording their AROs since the estimated timeframe expected to pass until the Company is required to plug and abandon the wells is shorter than was estimated at the previous yearend.

A portion of the increase in the ARO estimate during 2012 is related to a transaction with a former partner in which we obtained their interest in a property, along with a cash settlement from them for their portion of the ARO. Their portion of the ARO on this property is now included in our ARO estimate. In connection with this agreement, we obtained updated third party estimates of certain offshore AROs. Based on new government regulations as well as increased costs to perform plugging and abandonment work in the Gulf of Mexico, the ARO has increased substantially. As a result, we have re-evaluated our AROs recorded for properties in this area. Additionally, Hurricane Isaac impacted one of our wells causing changes in the ARO estimate for this well.

The change in estimate during 2011 was primarily due to an increase in the Company’s share of plugging and abandonment obligations on one field in the Gulf of Mexico due to the Company now being responsible for a higher percentage of the plugging and abandonment on certain wells that the former owner used to share in.

RAAM Global Energy Co 10-K