Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

Commitments and Contingencies
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Drilling and Completion Commitments
In March 2020, we provided termination notices releasing our contracted drilling rigs in connection with the suspension of our drilling and completion program. Costs of $1.6 million associated with the demobilization of the rigs in connection with their release were capitalized to our full cost pool. In April 2020, we rescinded one of the termination notices and entered into a new agreement to maintain one rig in place for a minimal daily rate providing us with the option to either restart drilling operations on seven days’ notice or release the rig altogether for demobilization. This rig was subsequently released in June 2020. Costs of $0.4 million associated with maintaining this rig on a standby basis were also capitalized to our full cost pool.
We also have a one-year agreement that became effective January 1, 2020, which can be terminated with 30 days notice by either party, for certain frac services and related materials, with no minimum commitment. We did not incur any costs under this agreement from mid-April through May 2020 due to the suspension of the drilling and completion program. We began to incur costs under this agreement in June 2020 upon the resumption of completion activities for wells that were drilled but uncompleted at the time of the suspension.
Crude Oil Storage
In March 2020, we secured crude oil storage capacity with Nuevo Dos Gathering and Transportation, LLC (“Nuevo G&T”) for up to 70,000 barrels per month for May and June 2020 as a supplement to our current dedicated capacity of approximately 150,000 barrels of working capacity at Nuevo G&Ts central delivery point facility in Lavaca County, Texas. In June 2020, we extended this agreement with Nuevo G&T through October 2020. The total remaining obligation under this agreements was $0.1 million as of June 30, 2020. In April 2020, we secured additional crude oil storage capacity for up to approximately 90,000 barrels of working capacity with a downstream interstate pipeline at their facility in DeWitt County, Texas, for up to six months beginning in May 2020. The total remaining obligation under this agreement is approximately $0.3 million as of June 30, 2020. Costs associated with these agreements are in the form of monthly fixed rate short-term leases and are charged as incurred on a monthly basis to GPT.
Gathering and Intermediate Transportation Commitments
We have long-term agreements with Nuevo G&T and Nuevo Dos Marketing, LLC (“Nuevo Marketing” and together with Nuevo G&T, collectively “Nuevo”) to provide gathering and intermediate pipeline transportation services for a substantial portion of our crude oil and condensate production in as well as volume capacity support for certain downstream interstate pipeline transportation.
Nuevo is obligated to gather and transport our crude oil and condensate from within a dedicated area in the Eagle Ford via a gathering system and intermediate takeaway pipeline connecting to a downstream interstate pipeline operated by a third party through 2041. We have a minimum volume commitment (“MVC”) of 8,000 gross barrels of oil per day to Nuevo through 2031 under the gathering agreement. We are obligated to deliver the first 20,000 gross barrels of oil per day produced from Gonzales, Lavaca and Fayette Counties, Texas.
Under a marketing agreement, we have a commitment to sell 8,000 barrels per day of crude oil (gross) to Nuevo, or to any third party, utilizing Nuevo Marketing’s capacity on a downstream interstate pipeline through 2026.
Under each of the agreements with Nuevo, credits for deliveries of volumes in excess of the volume commitment may be applied to any deficiency arising in the succeeding 12-month period.
Excluding the application of existing credits that we have earned during the preceding 12-month period ended June 30, 2020 for deliveries of volumes in excess of the volume commitment, and the potential impact of the effects of price escalation from commodity price changes, if any, the minimum fee requirements attributable to the MVC under the gathering and transportation agreement are as follows: $6.5 million for the remainder of 2020, $13.0 million per year for 2021 through 2025, $7.4 million for 2026, $3.8 million per year for 2027 through 2030 and $2.2 million for 2031.
Legal, Environmental Compliance and Other Claims
We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, our management believes that these claims will not have a material effect on our financial position, results of operations or cash flows. As of June 30, 2020, we had a reserve in the amount of $0.3 million included in “Accounts payable and accrued liabilities” for the estimated settlement of a dispute with a partner regarding certain transactions that occurred in prior years. As of June 30, 2020, we had AROs of approximately $5.2 million attributable to the plugging of abandoned wells. In June 2020, we provided for an estimated reserve of approximately $0.1 million for certain claims made against us regarding previously divested operations.