Note 11 — Commitments and Contingencies

CO₂ Take-or-Pay Agreements

Resolute is party to a take-or-pay purchase agreement with Kinder Morgan CO₂ Company L.P., under which Resolute has committed to buy specified volumes of CO₂. The purchased CO₂ is for use in Resolute’s enhanced tertiary recovery projects in Aneth Field. Resolute is obligated to purchase a minimum daily volume of CO₂ or pay for any deficiencies at the price in effect when delivery was to have occurred. The ultimate CO₂ volumes planned for use on the enhanced recovery projects exceed the minimum daily volumes provided in these take-or-pay purchase agreements. Although the Company may incur deficiency payments from time to time, Resolute expects to avoid any permanent payments for deficiencies over the term of the agreement.

Future minimum CO₂ purchase commitments as of December 31, 2013, under this purchase agreement, based on prices and volumes in effect at December 31, 2013, are as follows (in thousands):

 

Year		CO2 Purchase Commitments
2014		$	30,899
2015			30,899
2016			12,291
Total		$	74,089

Operating Leases

For 2013, 2012 and 2011, month-to-month office facilities rental payments charged to expense were approximately $2.0 million, $1.5 million and $1.1 million, respectively. Future rental payments for office facilities under the terms of non-cancelable operating leases as of December 31, 2013, were approximately $1.1 million in 2014, $3.0 million in 2015 and 2016 and $7.7 million in 2017 and thereafter.

The Company is also party to several field equipment and compressor leases used in the CO₂ project. Total gross future rental payments under the terms of these leases amount to annual payments of $3.2 million in 2014, $2.2 million in 2015, $1.6 million in 2016, $1.5 million in 2017 and total lease obligations of $0.2 million thereafter. Additionally, the Company is party to vehicle lease agreements with commitments in 2014, 2015, 2016 and 2017 of $1.0 million, $0.6 million, $0.3 million and $0.1 million, respectively. The Company’s net rental expense for 2013, 2012 and 2011 was $2.9 million, $2.6 million and $2.5 million, respectively.

Escrow Funding Agreement

Under the terms of Resolute’s predecessor Company’s purchase of working interests in Greater Aneth from ExxonMobil Corporation (the “ExxonMobil Properties”) in 2006, Resolute and NNOGC were required to fund an escrow account sufficient to complete abandonment, well plugging, site restoration and related obligations arising from ownership of the acquired interests. The contribution net to the Company’s working interest, is included in “other assets: restricted cash” in the consolidated balance sheets at December 31, 2013. The Company is required to make additional deposits to the escrow account annually. From 2014 through 2016, Resolute must fund approximately $1.6 million per year. In years after 2016, the Company must fund additional payments averaging approximately $0.9 million per year until 2031. Total contributions from the date of acquisition through 2031 will aggregate $26.0 million. Annual interest earned in the escrow account, if any, becomes part of the balance and reduces the payment amount required for funding the escrow account each year. As of December 31, 2013, the Company has funded the 2013 annual contractual amount of approximately $1.6 million required to meet its future obligation.

 

NNOGC Purchase Options

Resolute’s purchase of the Aneth Field Properties was facilitated by the predecessor Company’s strategic alliance with NNOGC and, through NNOGC, the Navajo Nation. This strategic alliance with NNOGC is embodied in a Cooperative Agreement consummated with NNOGC in 2004 to facilitate the joint acquisition of working interests in Greater Aneth from Chevron Corporation and its affiliates (the “Chevron Properties”). The agreement was amended subsequently to facilitate the joint acquisition of the ExxonMobil Properties and was amended again in conjunction with the sale of 10% of the Company’s interest in Aneth Field to NNOGC during the second quarter of 2012.

Under the original terms of the Cooperative Agreement, NNOGC was granted three separate but substantially similar purchase options. Each purchase option entitled NNOGC to purchase from Resolute up to 10% of the undivided working interests in the Chevron Properties or the ExxonMobil Properties, as applicable, as to each unit in the Aneth Field Properties. The Cooperative Agreement amendment executed in 2012 provides for the cancellation of the second set of options held by NNOGC to purchase an additional 10% interest in the Aneth Field Properties and stipulates that NNOGC has one remaining option to purchase an additional 10% of the Company’s interest in the Aneth Field Properties (as it stood prior to the current option exercise and excluding the interest acquired from Denbury and certain other minority interests). The remaining option is exercisable in July 2017 at the then current fair market value of such interest. The exercise by NNOGC of its remaining purchase option in full would not give it the right to remove Resolute as operator of any of the Aneth Field Properties.