Asset Retirement Obligation (Notes) |
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| Asset Retirement Obligation Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset Retirement Obligation |
ASSET RETIREMENT OBLIGATION
A component of the consideration exchanged to purchase the GIGS assets from Energy XXI USA, Inc. in June 2015, was the assumption of the seller’s asset retirement obligation associated with such assets. The ARO represents the estimated costs of decommissioning the GIGS pipelines and onshore oil receiving and separation facilities in Grand Isle, Louisiana at retirement. In accordance with ASC 410-20, Asset Retirement Obligations, we recognized an ARO at an agreed-upon fair value on the date of acquisition of $12.5 million. A corresponding asset retirement cost was capitalized as part of the carrying amount of the related long-lived assets and will be depreciated over the assets’ remaining useful lives.
The liability was initially measured using the amount agreed upon between the parties in an arm's length transaction, which under ASC 410-20, represents fair value. During negotiations with EXXI and to arrive at an agreed-upon amount, we commissioned an independent third-party study whereby the cost of decommissioning GIGS' offshore pipelines were estimated as though they were decommissioned in place for Federal Waters and as though they were removed in State Waters. In accordance with State and Federal requirements, the pipelines are pigged, flushed with ends cut, plugged and buried. Onshore estimates include complete removal of the facility. The piping and tanks are cleaned of hydrocarbons. All surface piping, tanks, equipment, concrete and gravel are dismantled and removed to three feet below the ground surface. Concrete and gravel are removed and the site is graded to a smooth contour. The liability will be adjusted annually for ARO accretion expense and periodically for changes in the amount or timing of the estimated future cash flows. Future expected cash flows will be based on subjective estimates and assumptions, which inherently include significant uncertainties which are beyond our control. These assumptions represent Level 3 inputs, as further discussed in Note 2.
In periods subsequent to the initial measurement of an ARO, we recognize period-to-period changes in the liability resulting from either (a) the passage of time or (b) revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Consequently, the ARO has been accreted for the passage of time. For the years ended December 31, 2015, 2014 and 2013, $339 thousand, $0 and $0 of accretion expense was recorded, respectively.
Our tenant, EXXI Tenant, has an ARO related to the platform which is currently attached to the GIGS pipelines. If in the future, EXXI is unable to fulfill their obligation, we may be required to assume the liability for the related asset removal costs.
The following table is a reconciliation of the asset retirement obligation as of December 31, 2015:
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