Oil and Natural Gas Properties

6 Months Ended

Jun. 30, 2021

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

Oil and Natural Gas PropertiesThe 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 and six months ended June 30, 2021, depletion expense for oil and gas producing property and related equipment was $25.9 million and $50.1 million, respectively. For the three and six months ended June 30, 2020, depletion expense for oil and gas producing property and related equipment was $22.8 million and $47.3 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

No impairments were recorded to the Company's oil and natural gas properties during the three or six months ended June 30, 2021.

During the three months ended June 30, 2020, the Company recorded non-cash impairment charges of $0.1 million to its oil and natural gas properties due to acreage expirations. During the six months ended June 30, 2020, as a result of the decline in crude oil price futures at the time, the Company recorded the following non-cash impairment charges:


(In thousands)	Eagle Ford Trend		Midland Basin		Corporate		Total
Proved properties	$	25,252	$	—	$	—	$	25,252
Unproved properties	11,311		—		—		11,311
Acreage expirations (1)	431		5,819		—		6,250
Goodwill	—		—		17,620		17,620
	$	36,994	$	5,819	$	17,620	$	60,433

(1)Impairments in unproved properties resulting from acreage deemed expired (not planned to be renewed).