Oil and Natural Gas Properties

The Company follows the successful efforts method of accounting for its oil and natural gas properties. Under this method, costs to acquire oil and natural gas properties, drill and equip exploratory wells that find proved reserves, and drill and equip development wells are capitalized. Exploration costs, including unsuccessful exploratory wells and geological and geophysical costs, are charged to operations as incurred. Upon sale or retirement of oil and natural gas properties, the costs and related accumulated depreciation, depletion and amortization are eliminated from the accounts and the resulting gain or loss is recognized.

Costs incurred to maintain wells and related equipment, lease and well operating costs, and other exploration costs are charged to expense as incurred. Gains and losses arising from the sale of properties are included in Income from operations in the Condensed Consolidated Statements of Operations.

The Company’s lease acquisition costs and development costs of proved oil and natural gas properties are amortized using the units-of-production method, at the field level, based on total proved reserves and proved developed reserves, respectively. For the three months ended March 31, 2020 and 2019, depletion expense for oil and gas producing property and related equipment was $24.5 million and $13.8 million, respectively.

Proved Properties

Proved oil and natural gas properties are reviewed for impairment on a nonrecurring basis. The impairment charge reduces the carrying values to their estimated fair values. These fair value measurements are classified as Level 3 measurements and include many unobservable inputs. Fair value is calculated as the estimated discounted future net cash flows attributable to the assets. The Company’s primary assumptions in preparing the estimated discounted future net cash flows to be recovered from oil and gas properties are based on (i) proved reserves, (ii) forward commodity prices and assumptions as to costs and expenses, and (iii) the estimated discount rate that would be used by potential purchasers to determine the fair value of the assets.

Unproved Properties

Unproved properties consist of costs incurred to acquire undeveloped leases. Unproved oil and gas leases are generally for a primary term of three to five years. In most cases, the term of the unproved leases can be extended by paying a lease renewal fee, meeting contractual drilling obligations, or by the presence of producing wells on the leases. Unproved costs related to successful drilling on unproved leases are reclassified to proved properties.

The Company reviews its unproved properties periodically for impairment. In determining whether an unproved property is impaired, the Company considers numerous factors including, but not limited to, current exploration and development plans, favorable or unfavorable exploration activity on the property being evaluated and/or adjacent properties, the Company’s geologists' evaluation of the property, and the remaining months in the lease term for the property.

Impairments to Oil and Natural Gas Properties

During the three months ended March 31, 2020, as a result of the recent decline in crude oil price futures, the Company recorded non-cash impairment charges of $25.3 million and $11.3 million to its proved and unproved oil and natural gas properties, respectively, located in the Eagle Ford Trend. As a result of certain acreage expirations, the Company recorded non-cash impairment charges of $6.2 million during the three months ended March 31, 2020.

The Company did not record any impairments to its oil and natural gas properties for the three months ended March 31, 2019.

Capitalized costs, impairment, and depreciation, depletion and amortization relating to the Company’s oil and natural gas properties as of March 31, 2020 and December 31, 2019, are summarized below (in thousands):



	March 31,			December 31,
	2020			2019
Oil and gas properties, successful efforts method:
Proved properties	$	1,091,861		$	1,046,208
Accumulated impairment to proved properties	(100,652		)	(75,400		)
Proved properties, net of accumulated impairments	991,209			970,808
Unproved properties	301,666			305,961
Accumulated impairment to Unproved properties	(63,189		)	(45,690		)
Unproved properties, net of accumulated impairments	238,477			260,271
Land	5,382			5,382
Total oil and gas properties, net of accumulated impairments	1,235,068			1,236,461
Accumulated depreciation, depletion and amortization	(219,823		)	(195,567		)
Net oil and gas properties	$	1,015,245		$	1,040,894