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Commitments and Contingencies
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9 Months Ended |
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Sep. 30, 2012
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| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
Commitments and Contingencies
Crest Royalty
Under a settlement agreement dated as of June 14, 2001, we agreed to pay or cause certain affiliates, successors and assigns to pay a royalty, which we refer to as the Crest Royalty. This Crest Royalty was calculated based on the volume of natural gas processed through covered LNG facilities, subject to a minimum of $2.0 million and a maximum of approximately $11.0 million per production year. In 2003, Freeport LNG contractually assumed the obligation to pay the Crest Royalty for natural gas processed at Freeport LNG's receiving terminal. As of May 2010, the calculation of the Crest Royalty and the scope of Freeport LNG's assumed obligation to pay the Crest Royalty were being litigated in a declaratory judgment and breach of contract action in Texas state court.
In March 2012, we purchased all of the rights, title, and interest in the Crest Royalty. The purchase of the Crest Royalty represented the acquisition of payments in future periods; therefore, we recorded approximately $25 million as an other non-current asset on our Consolidated Balance Sheets.
In September 2012, we entered into a settlement agreement with Freeport LNG and we terminated the Crest Royalty. As a result of the settlement with Freeport LNG, we recorded $13.2 million as an other non-current asset on our Consolidated Balance Sheets that represents the discounted cash flow fair value of the expected proceeds from Freeport LNG over the next 20 years. The fair value was determined utilizing a discount rate based on counterparty credit risk. The difference from the fair value asset recorded and the actual cash proceeds will be recorded as interest income on our Consolidated Income Statement over the next 20 years. As a result of the termination of the Crest Royalty between us and certain of our subsidiaries, we expensed $12.3 million on our Consolidated Statements of Operations in the three and nine months ended September 30, 2012.
As a result of all of these transactions, we have resolved disputes persisting since 2001 related to real property at Freeport LNG and we have released certain of our subsidiaries from the first priority lien that had been granted to holders of the Crest Royalty, thereby improving our financial flexibility.
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