Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Note 14—Commitments and Contingencies Operating Leases and Other Contractual Commitments The following is a schedule of the Company’s future minimum payments with commitments that have initial or remaining non-cancelable contractual terms in excess of one year as of December 31, 2018:
Drilling Rig Contracts As of December 31, 2018, the Company had seven drilling rigs under contract and its obligations under these agreements are included in the above schedule. Early termination of these contracts would result in termination penalties of $25.8 million as of December 31, 2018, which would be paid in lieu of paying the remaining drilling commitments shown above. The Company recognized $61.6 million, $38.0 million, $1.0 million and $2.0 million for the years ended December 31, 2018 and 2017 and the periods from October 11, 2016, through December 31, 2016, and January 1, 2016, through October 10, 2016, respectively, under these long-term contracts. These costs are initially capitalized as a component of oil and gas properties and either depleted in future periods or written off as exploration expense. Office Leases The Company leases office space in Colorado, Texas, and New Mexico. A portion of the Company’s leased office space is subleased to a third party; however, the offsetting rental income from the sublease is not reflected in the above table. The Company recognized rent expense of $1.9 million, $1.1 million, $0.1 million, and $0.4 million for the years ended December 31, 2018 and 2017 and the periods from October 11, 2016, through December 31, 2016, and January 1, 2016, through October 10, 2016, respectively. Water Disposal Agreement The Company has water disposal agreements for contracted transportation and disposal of produced water from its operated wells. Under the terms of these agreements, Centennial is obligated to provide a minimum volume of produced water or else pay for any deficiencies at the prices stipulated in the contracts. The obligations reported above represent the minimum financial commitments pursuant to the terms of the contracts as of December 31, 2018. Actual expenditures under these contracts may exceed the minimum commitments presented above. The Company recognized water disposal costs of $14.9 million and $2.4 million for the years ended December 31, 2018 and 2017, respectively, related to its water disposal agreements. Purchase Obligations The Company has purchase agreements to buy frac sand, which is used in its well fracture completion process, for a term of three years. Under the terms of these agreements, Centennial is obligated to purchase a minimum volume of frac sand at a fixed sales price. The obligations included in the table above represent our minimum financial commitments pursuant to the terms of the contracts as of December 31, 2018. Actual expenditures under these contracts may exceed the minimum commitments presented above. Pursuant to the terms of one of the frac sand purchase agreements, the Company paid $13.2 million for the year ended December 31, 2017 as a pre-payment for advanced purchases of frac sand of which $1.6 million and $4.6 million were capitalized as incurred in 2017 and 2018, respectively. For the year ended December 31, 2018 the Company paid $9.7 million under these contracts which was capitalized as incurred during the year. Transportation and Gathering Agreements The Company has various natural gas transportation and gathering agreements whereby it is required to deliver approximately 489 million MMBtu, in aggregate, over a term ranging from one to four years or else pay any volume deficiencies. These delivery commitments are tied to the Company’s natural gas production; however, the Company is not required to deliver oil or gas specifically produced from any of the Company’s properties under these agreements. The obligations reported above represent the gross minimum financial commitments pursuant to the terms of these agreements as of December 31, 2018. Actual expenditures under these contracts may exceed the minimum commitment amounts presented above. The Company paid transportation and gathering costs of $3.7 million and $1.2 million for the year ended December 31, 2018 and 2017, respectively, related to these agreements. The following table summarizes the natural gas volumes the Company is required to deliver by period under these agreements:
Delivery Commitments In August 2018, the Company entered into two firm crude oil sales agreements with large integrated oil companies. Utilizing these companies’ existing transport capacity out of the Permian Basin, the agreements provide for firm gross sales ranging from approximately 30,000 to 105,000 Bbls/d in aggregate over the next six years. These sales agreements only require the Company to physically deliver 30,000 Bbls/d of the aforementioned volumes of crude oil during the contractual years 2020 through 2024, which if not met, would result in a financial obligation. Failure to deliver the remainder of the committed volumes of crude oil under these agreements could result in a reduction of contractual volumes at the purchasers discretion in accordance with the terms of the agreements. In 2018, the Company entered into firm gas sales agreements, which provide for firm gross sales ranging from approximately 40,000 to 90,000 MMBtu/d in aggregate over the next four years. These sales agreements do not require the Company to physically deliver the aforementioned volumes of natural gas over the contractual terms of the agreements. However, if the firm commitments are not met and the purchaser incurs financial damages, the Company may be required to pay for differences between the contracted prices and current market prices for replacement volumes bought by the purchaser and the purchaser may also require the Company to provide additional financial guaranty in accordance with the terms of the agreements. The amounts discussed above represent the total gross volumes the Company is required to deliver per the agreements, which are not comparable to the Company’s net production presented in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation as amounts therein are reflected net of all royalties, overriding royalties and production due to others. The Company believes its current production and reserves are sufficient to fulfill the physical delivery commitments; however, the Company is not required to deliver oil or gas specifically produced from any of the Company’s properties under these agreements. Further, if the Company’s production is not sufficient to satisfy the firm delivery commitments, the Company believes it can purchase sufficient volumes in the market at index-related prices to satisfy its commitments. The aggregate amount of any such potential financial obligation under these contracts is not determinable since the amount and timing of any volumetric shortfalls, as well as the difference between the prevailing market price and contract price at such time, cannot be predicted with accuracy. Contingencies The Company may at times be subject to various commercial or regulatory claims, litigation or other legal proceedings that arise in the ordinary course of business. While the outcome of these lawsuits and claims cannot be predicted with certainty, management believes it is remote that the impact of such matters that are reasonably possible to occur will have a material adverse effect on the Company’s financial position, results of operations or cash flows. Management is unaware of any pending litigation brought against the Company requiring the reserve of a contingent liability as of the date of these consolidated financial statements. |
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