4.  IMPAIRMENT OF PROVED PROPERTIES

We review our oil and gas producing properties for impairment whenever events or changes in circumstances indicate that the carrying amount of such properties may not be recoverable. When it is determined that an oil and gas property’s estimated future net cash flows will not be sufficient to recover its carrying amount, an impairment charge is recorded to reduce the carrying amount of the asset to its estimated fair value.

Declining forecasted oil prices in 2015 caused us to perform impairment reviews of our proved properties in the quarters ended March 31, 2015 and June 30, 2015, for the five fields comprising the Etame Marin block offshore Gabon and the Hefley field in North Texas.  For the three and six months ended June 30, 2015, the impairments of proved properties were $5.8 million and $11.2 million.

For the quarter ended March 31, 2015, we performed an impairment evaluation using the year end 2014 independently prepared reserve report and forward price curves as of March 31, 2015. Undiscounted cash flows related to the Southeast Etame and North Tchibala fields were less than the carrying value for these fields requiring an impairment of the assets to fair value.  We recorded an impairment charge of $5.4 million in the quarter ended March 31, 2015, reducing the carrying value of those fields to their fair value of zero. The impairment was primarily a result of declines in forecasted oil prices, as well as higher costs for planned development wells used in the impairment evaluation.

For the quarter ended June 30, 2015, we performed an impairment evaluation using the year end 2014 independently prepared reserve report and forward price curves as of June 30, 2015. As in the previous quarter, impairment was indicated for the Southeast Etame and North Tchibala fields, primarily as a result of higher than planned costs for the two drilled development wells. We recorded an impairment charge of $5.8 million in the quarter ended June 30, 2015, reducing the carrying value of those fields to their fair values  of $9.1 million for Southeast Etame and zero for North Tchibala.

Each quarter, fair value was measured using a discounted cash flow method and based on estimates of future revenues and costs associated with the Etame Marin block offshore Gabon and the Hefley field in North Texas. Significant Level 3 inputs to the calculation of discounted cash flows include our estimate of future crude oil and natural gas prices, production costs, development costs and anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data. For crude oil, estimates were based on NYMEX Brent prices, adjusted for quality, transportation fees, and market differential.

Beginning in the third quarter of 2014, oil prices began a substantial decline which has persisted into 2015. As this period of sustained reduced oil prices continues, further non-cash impairments of proved properties could be necessary in future periods. Impairments in future periods may also arise as a result of higher than expected capital and production costs, lower production rates or other factors.

In the three and six months ended June 30, 2014, we determined that no impairment charge was necessary.