Dispositions

9 Months Ended

Sep. 30, 2020

(4) DISPOSITIONS

We recognized a pretax net loss of $9.2 million on the sale of assets in third quarter 2020 compared to a pretax net loss of $36.3 million in third quarter 2019 and a pretax net gain of $112.4 million in first nine months 2020 compared to a pretax net loss of $30.7 million in first nine months 2019. See discussion below for further details.

2020 Dispositions

North Louisiana. In August 2020, we completed the sale of our North Louisiana assets for total consideration having an estimated fair value of $260.0 million. This estimated fair value reflects (i) cash proceeds of $245.0 million, before normal closing adjustments and (ii) $15.0 million in contingent consideration which represents the estimated fair value, on August 14, 2020, of the contingent consideration we are entitled to receive in the future should certain commodity price thresholds be met. We recorded a pretax loss of $8.1 million, after closing adjustments.

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Contingent consideration. We are entitled to receive contingent consideration, annually through 2023, of up to $90.0 million based on future achievement of certain natural gas and oil prices based on published indexes along with the realized NGLs price of the buyer. We used an option pricing model to determine the fair value of the contingent consideration which resulted in an estimated fair value of $15.0 million at closing. The fair value of the contingent consideration is classified as current and noncurrent derivative asset on our consolidated balance sheet. We will revalue the contingent consideration each reporting period, with any valuation changes being recorded as derivative fair value income or loss in our consolidated statements of operations. See also Note 11 and Note 12 for additional information.

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Divestiture contract obligation. As part of the sale of our North Louisiana assets, we retained certain midstream gathering, transportation and processing obligations through 2030. We determined the fair value of these obligations as of the closing date of the sale, to be $479.8 million using a probability weighted discounted cash flow model. The divestiture contract obligation is included in current or non-current liabilities in our consolidated balance sheet based on the forecasted timing of payments. These costs are recognized in exit and termination costs in our consolidated statements of operations. See also Note 12 for additional information.

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Novated derivatives. Also as part of the sale of our North Louisiana assets, during third quarter 2020, we entered into certain natural gas derivative positions which were subsequently novated to the buyer in conjunction with the completion of the sale. The unrealized fair value of these derivatives at the closing of the sale was a net liability of $12.1 million which was transferred to the buyer. The unrealized loss associated with the novated positions was offset by the gain that we recognized when the liability was transferred to the buyer. These offsetting amounts were recognized on our consolidated statements of operations in loss on sale of assets.

Pennsylvania. In first quarter 2020, we completed the sale of our shallow legacy assets in Northwest Pennsylvania for proceeds of $1.0 million. Based upon the receipt of approval from state governmental authorities of a change in operatorship during that quarter, we recognized a pretax gain of $122.5 million primarily due to the elimination of the asset retirement obligation associated with these properties.

Other. In third quarter 2020, we sold miscellaneous inventory and other assets for proceeds of $11,000 resulting in a pretax loss of $1.1 million. In first six months 2020, we sold miscellaneous inventory and other assets for proceeds of $71,000, resulting in a pretax loss of $833,000.

2019 Dispositions

Pennsylvania. In third quarter 2019, we sold a proportionately reduced 2.5% overriding royalty in three separate transactions primarily covering our Washington County, Pennsylvania leases for gross proceeds of $750.0 million. We recorded a loss of $36.5 million which represents closing adjustments and transaction fees. In second quarter 2019, we sold natural gas and oil property, primarily representing over 20,000 unproved acres, for proceeds of $34.0 million and recognized a pretax gain of $5.9 million.

Other. In third quarter 2019, we sold miscellaneous inventory and other assets for proceeds of $161,000 resulting in a pretax gain of $117,000. In first six months 2019, we sold miscellaneous inventory and other assets for proceeds of $366,000 resulting in a pretax loss of $187,000.