Divestitures, Decommissioning and Restructuring Activities

3 Months Ended

Mar. 31, 2020

Discontinued Operations and Disposal Groups [Abstract]

Divestitures, Decommissioning and Restructuring Activities

Divestitures

In May 2019, the Company completed the sale of its Eagle Ford assets and other remaining assets in South Texas (the "South Texas Divestiture") to an unaffiliated third party in exchange for total consideration having an estimated fair value of $210 million, after normal closing adjustments. The fair value of the consideration included (i) net cash proceeds of $2 million, (ii) $136 million in contingent consideration and (iii) a $72 million receivable associated with estimated deficiency fees to be paid by the buyer.

Contingent Consideration. Per the terms of the purchase and sale agreement, the Company is entitled to receive contingent consideration of up to $450 million based on future annual oil and NGL prices during each of the five years from 2020 to 2024. The Company determined the fair value of the contingent consideration as of the date of the sale to be $136 million using an option pricing model. The fair value of the contingent consideration is included in noncurrent other assets in the consolidated balance sheets since, if earned, such consideration will be paid by the buyer in installments beginning in 2023 through 2025. The Company revalues the contingent consideration each reporting period and records the resulting valuation changes in net interest and other income (loss) in the consolidated statements of operations. The Company recorded a loss on valuation adjustment of $63 million for the three months ended March 31, 2020. The fair value of the contingent consideration was $28 million as of March 31, 2020. See Note 4, Note 5 and Note 13 for additional information.

Deficiency Fee Obligation. The Company transferred its long-term midstream agreements and associated minimum volume commitments ("MVC") to the buyer. However, the Company retained the obligation to pay 100 percent of any deficiency fees associated with the MVC from January 2019 through July 2022. The Company determined the fair value of the deficiency fee obligation as of the date of the sale to be $348 million using a probability weighted present value model. The deficiency fee obligation is included in current or noncurrent liabilities in the consolidated balance sheets, based on the timing of payments. In March 2020, the Company recorded a charge of $69 million in other expense for the three months ended March 31, 2020, due to changes in the Company's forecasted deficiency fee payments. The estimated remaining deficiency fee obligation was $323 million as of March 31, 2020. See Note 4, Note 10 and Note 14 for additional information.

Deficiency Fee Receivable. The buyer is required to reimburse the Company for 18 percent of the deficiency fees paid under the transferred midstream agreements from January 2019 through July 2022. Such reimbursement will be paid by the buyer in installments beginning in 2023 through 2025. The Company determined the fair value of the deficiency fee receivable as of the date of the sale to be $72 million using a credit risk-adjusted valuation model. The deficiency fee receivable is included in noncurrent other assets in the consolidated balance sheets. See Note 4 for additional information.

Restricted Cash. As of March 31, 2020, the Company has $74 million deposited in an escrow account to be used to fund future deficiency fee payments. The escrow account balance is included in restricted cash in the consolidated balance sheet as of March 31, 2020. Beginning in 2021, the required escrow balance will decline to $50 million and, to the extent that there is any remaining balance after the payment of deficiency fees, the balance will become unrestricted and revert to the Company on March 31, 2023.

Decommissioning

In November 2018, the Company announced plans to close its sand mine located in Brady, Texas and transition its proppant supply requirements to West Texas sand sources. During the three months ended March 31, 2019, the Company recorded $23 million of accelerated depreciation and $13 million of inventory and other property and equipment impairment charges associated with the sand mine closure. See Note 14 for additional information.

Restructuring

During 2019, the Company implemented a corporate restructuring program to align its cost structure with the needs of a Permian Basin-focused company. The restructuring occurred in three phases (collectively, the "Corporate Restructuring Program") as follows:

•In March 2019, the Company made certain changes to its leadership and organizational structure, which included the early retirement and departure of certain officers of the Company,

•In April 2019, the Company adopted a voluntary separation program ("VSP") for certain eligible employees, and

•In May 2019, the Company implemented an involuntary separation program ("ISP").

The employee-related costs associated with the restructuring were primarily recorded in other expense in the consolidated statements of operations. Obligations associated with employee-related charges are included in accounts payable - due to affiliates in the consolidated balance sheets. See Note 14 for additional information.

The changes in the Company's total employee-related obligations are as follows:


	Three Months Ended March 31,
	2020		2019
	(in millions)

Beginning employee-related obligations	$	6	$	27


Additions (Note 14)	—		13

Cash payments	(5)		(10)
Noncash changes	—		(4)
Ending employee-related obligations	$	1	$	26