Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Note 13—Commitments and Contingencies Contractual Obligations The following table is a schedule of the Company’s future minimum payments required under contractual commitments that have initial or remaining non-cancelable terms in excess of one year as of December 31, 2020:
Water Disposal Agreement The Company has entered into agreements for the transportation and disposal of produced water from a portion of its operated wells. Under the terms of these agreements, Centennial is obligated to deliver 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 remaining minimum financial commitment pursuant to the terms of the contracts as of December 31, 2020. Actual expenditures under these contracts may exceed the minimum commitments presented above. The Company recognized water disposal costs of $2.4 million, $2.6 million and $2.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to these water disposal agreements. Transportation Agreements The Company has various natural gas transportation agreements whereby it is required to pay fixed reservation fees for pipeline capacity over the contractual terms. The obligations reported above represent the gross minimum financial commitments pursuant to these agreements as of December 31, 2020. The Company has an additional gas transport agreement with a volumetric obligation, but this agreement has variable pricing components that cannot reliably be determined and therefore is not included above. Actual expenditures under these contracts are likely to exceed the minimum commitment amounts presented above. The Company paid transportation and gathering costs of $19.5 million, $12.8 million and $3.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to these agreements. Purchase Obligations The Company has purchase agreements to buy frac’ sand used in its well fracture stimulation process. Historically, under the terms of these agreements, Centennial was obligated to purchase a minimum volume of frac sand at a fixed sales price. However, these agreements were renegotiated in 2020 and all future minimum volume commitments were eliminated. No penalties were paid under these agreements during the year ended December 31, 2020 related to the failure to purchase the minimum volumes of frac sand or as a result of the modifications to the agreements. Delivery Commitments In August 2018, the Company entered into a firm crude oil sales agreement with a large integrated oil company that was subsequently amended during the year ended December 31, 2020. Utilizing this company’s transport capacity out of the Permian Basin, the agreement, as amended, provides for firm gross sales of 30,000 Bbls/d over the next 4.5 years and is based upon prevailing market prices of ICE Brent and contractual differentials. Under-delivery of volumes would result in a financial obligation to the Company. The Company has firm gas sales agreements that provide for firm gross sales ranging from approximately 41,000 to 91,000 MMBtu/d in aggregate over the next two years. These sales agreements do not require the Company to physically deliver the aforementioned volumes over the terms of the agreements, but if the volumetric commitments are not met and the purchaser incurs financial damages, the Company is required to pay for any differences between the contracted prices and current market prices for replacement volumes bought by the purchaser. The amounts discussed above represent the total gross volumes the Company is required to deliver per these agreements, which gross volumes 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, and 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. Lease Commitments Refer to Note 15—Leases for details on the Company’s operating lease agreements. Contingencies The Company may at times be subject to various commercial or regulatory claims, prior period adjustments from service providers, 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 claims or 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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