Oil and natural gas properties

3 Months Ended

Mar. 31, 2015

Property, Plant and Equipment [Abstract]

The company uses the full-cost method of accounting for its oil and natural gas production activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized and amortized on the units-of-production method based on total proved reserves. Any conveyances of properties, including gains or losses on abandonments of properties, are generally treated as adjustments to the cost of the properties with no gain or loss recognized.

Capitalized costs are subject to a "ceiling test" that limits such costs to the aggregate of the present value of future net cash flows from proved reserves discounted at 10 percent, as mandated under the rules of the SEC, plus the cost of unproved properties not subject to amortization, plus the effects of cash flow hedges, less applicable income taxes. Proved reserves and associated future cash flows are determined based on SEC Defined Prices and exclude cash outflows associated with asset retirement obligations that have been accrued on the balance sheet. If capitalized costs, less accumulated amortization and related deferred income taxes, exceed the full-cost ceiling at the end of any quarter, a permanent noncash write-down is required to be charged to earnings in that quarter regardless of subsequent price changes.

The Company's capitalized cost under the full-cost method of accounting exceeded the full-cost ceiling at March 31, 2015. SEC Defined Prices, adjusted for market differentials, are used to calculate the ceiling test. Accordingly, the Company was required to write down its oil and natural gas producing properties. The noncash write-down amounted to $500.4 million ($315.3 million after tax) for the three months ended March 31, 2015.

At March 31, 2014 and December 31, 2014, the Company's full-cost ceiling exceeded the Company's capitalized cost. Various factors, including lower SEC Defined Prices, market differentials, changes in estimates of proved reserve quantities, unsuccessful results of exploration and development efforts or changes in operating and development costs could result in future noncash write-downs of the Company's oil and natural gas properties.

SEC Defined Prices for each quarter for the last 12 months were as follows:



SEC Defined Prices for the 12 months ended	NYMEX Oil Price (per Bbl)		Henry Hub Gas Price (per MMBtu)		Ventura Gas Price (per MMBtu)
March 31, 2015	$	82.72	$	3.87	$	3.96
December 31, 2014	94.99		4.34		7.71
September 30, 2014	99.08		4.24		7.60
June 30, 2014	100.27		4.10		7.47

For purposes of comparison, first-of-the-month prices were as follows:



	NYMEX Oil Price (per Bbl)		Henry Hub Gas Price (per MMBtu)		Ventura Gas Price (per MMBtu)
April 2015	$	50.09	$	2.63	$	2.45
May 2015	59.15		2.57		2.51

Given the current oil and natural gas pricing environment, the Company believes it is likely it will have noncash write-downs of its oil and natural gas properties in future quarters until such time as commodity prices begin to recover.

- Definition

The entire disclosure for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, accounting policies and methodology, roll forwards, depreciation, depletion and amortization expense, including composite depreciation, accumulated depreciation, depletion and amortization expense, useful lives and method used, income statement disclosures, assets held for sale and public utility disclosures.

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