2. IMPACT OF ASC 606 ADOPTION

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed consolidated income statement for the nine months ended September 30, 2018 is as follows:

	For the Nine Months Ended September 30, 2018
	Under ASC 606		Under ASC 605		Increase/ (Decrease)
	(Amounts in 000's)
Revenues:
Natural gas sales	$	479,704	$	479,915	$	(211	)
Oil sales		125,974		125,974		—
Other revenues		13,611		13,611		—
Total operating revenues		619,289		619,500		(211	)
Costs and expenses:
Production taxes		62,623		62,644		(21	)
Gathering fees		69,046		69,072		(26	)
Net income	$	45,502	$	45,666	$	(164	)

The change to sales of natural gas is due to the change from using the entitlements method for production imbalances to the sales method. The Company evaluated the contracts for sales of oil and natural gas utilizing the principal versus agent indicators, noting no change in revenue recognition resulted from the analysis.

Revenue Recognition

Revenue from Contracts with Customers

Sales of oil and natural gas are recognized at the point control of the product is transferred to the customer, collectability is reasonably assured, and the performance obligations are satisfied. Virtually all of our contracts’ pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil or natural gas, and prevailing supply and demand conditions. As a result, the price of the oil and natural gas fluctuates to remain competitive with other available oil and natural gas supplies.

Natural gas sales

We sell natural gas production at the tailgate of the processing plant or at a delivery point downstream, as specified in the contracts with our customers. The production is sold at set volumes and we collect (i) an agreed upon index price, (ii) a specific index price adjusted for pricing differentials, or (iii) a set price. We recognize revenue when control transfers to the purchaser at the tailgate of the processing plant or at the agreed-upon delivery point at the net price received. For these contracts, we have concluded that the Company is the principal for our net revenue interest share of the volumes being sold. Gathering fees are incurred prior to the customer taking control of the product, are not considered to be promised services, and are not included in the transaction price; thus, they are presented as expenses in the Condensed Consolidated Statement of Operations.

Our working interest partners are considered the principal for their working interest shares. They have the option to take in kind their volumes. The Company may act as an agent and market the other partners’ share of the natural gas production. If it does so, the Company is considered the agent and revenue is recorded at the Company’s net revenue interest in the production.

Oil sales

We sell oil production at (a) the lease automatic custody transfer (“LACT”) meter for Wyoming condensate, (b) the tank battery for Utah wax/condensate, or (c) a delivery point downstream, as specified in the contracts with our customers. The production is sold at set volumes and we collect (i) an agreed upon index price, net of pricing differentials or (ii) a set price. We recognize revenue at the point when the customer takes control of the product. For these contracts, we have concluded that the Company is the principal for its net revenue interest share of the volumes being sold. Gathering fees are performed prior to the customer taking control of the product, are not considered to be promised services, and are not included in the transaction price; thus, they are presented as expenses in the Condensed Consolidated Statement of Operations. In conjunction with the adoption of ASC 606, for the nine months ended September 30, 2018, there was no change to the method used to recognize oil sales and there was no impact to the condensed consolidated financial statements for oil sales.

Our working interest partners are considered the principal for their working interest shares. They have the option to take in kind their volumes. The Company may act as an agent and market the other partners’ share of the oil production. If it does so, the Company is considered the agent and revenue is recorded at the Company’s net revenue interest in the production.

Other revenues

Our other revenue is comprised of fees paid to us by the operators of the gas processing plants where our gas is processed. Control is transferred upon completion of the processing service. The Company is considered the principal, and revenue is recognized at the point in time that the control is transferred. In conjunction with the adoption of ASC 606, for the nine months ended September 30, 2018, there was no change to the method used to recognize other processing revenues and there was no impact to the condensed consolidated financial statements for other revenues.

Production imbalances

Previously, the Company elected to utilize the entitlements method to account for natural gas imbalances, which is no longer allowed under ASC 606. In conjunction with the adoption of ASC 606, for the nine months ended September 30, 2018, there was no material impact to the condensed consolidated financial statements due to this change in accounting for our production imbalances.

Transaction price allocated to remaining performance obligations

A significant number of our product sales are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

For our product sales that have a contract term greater than one year, we have utilized the practical expedient in ASC 606-10-50-14(a) which states that the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

Contract balances

Under our product sales contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our product sales contracts do not give rise to contract assets or liabilities under ASC 606.

Prior-period performance obligations

We record revenue in the month production is delivered to the purchaser. However, settlement statements for certain natural gas may not be received for 30 to 90 days after the date production is delivered, and as a result, we are required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. We record the differences between our estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. We have existing internal controls for our revenue estimation process and related accruals, and any identified differences between our revenue estimates and actual revenue received historically have not been significant. For the nine months ended September 30, 2018, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.