Dispositions

12 Months Ended

Dec. 31, 2020

(4)	Dispositions

We recognized a pretax net gain on the sale of assets of $110.8 million in the year ended December 31, 2020 compared to a pretax loss of $30.3 million in 2019 and a pretax loss of $10.7 million in 2018. The following describes the significant divestitures that are included in our consolidated results of operations for each of three years ended December 31, 2020, 2019 and 2018.

2020 Dispositions

North Louisiana. In third quarter 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. During 2020, we recorded a pretax loss of $9.5 million, after closing adjustments and transaction costs.

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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 realization 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 a current and noncurrent derivative asset on our consolidated balance sheet. We 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 10 and Note 11 for additional information.

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Divestiture contract obligation. As part of this sale, 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 11 and Note 16 for additional information.

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Novated derivatives. 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 gain or 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 2020, we sold miscellaneous material and supplies and other assets for proceeds of $127,000 resulting in a pretax loss of $2.2 million.

2019 Dispositions

Pennsylvania. In third quarter 2019, we sold, in three separate transactions, a proportionately reduced 2.5% overriding royalty, primarily in our Washington County, Pennsylvania leases for gross proceeds of $750.0 million. We recorded a pretax loss of $36.5 million related to this sale 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 2019, we sold miscellaneous proved property, material and supplies, equipment and other assets for proceeds of $938,000 resulting in a pretax gain of $337,000.

2018 Dispositions

Pennsylvania. In fourth quarter 2018, we sold a proportionately reduced 1% overriding royalty in our Washington County, Pennsylvania leases for gross proceeds of $300.0 million. We recorded a pretax loss of $10.2 million related to this sale which represents closing adjustments and transaction fees.

Northern Oklahoma. In third quarter 2018, we sold properties in Northern Oklahoma for proceeds of $23.3 million and we recorded a pretax net loss of $39,000 related to this sale, after closing adjustments.

Other. In 2018, we sold miscellaneous proved property, materials and supplies and other assets for proceeds of $1.2 million, resulting in a pretax loss of $448,000.