Assets Held for Sale and Discontinued Operations

Assets held for sale

The assets and liabilities of Pronghorn have been classified as held for sale. Pronghorn's results of operations are included in the pipeline and midstream segment. The Company's consolidated financial statements and accompanying notes for the current period reflect Pronghorn classified as held for sale.

Pronghorn On November 21, 2016, WBI Energy Midstream announced it had entered into a purchase and sale agreement to sell its 50 percent non-operating ownership interest in Pronghorn to Tesoro Logistics. The transaction closed on January 1, 2017. The sale of Pronghorn further reduces the Company's risk exposure to commodity prices.

The carrying amounts of the major classes of assets and liabilities that are classified as held for sale associated with Pronghorn on the Company's Consolidated Balance Sheets at December 31 were as follows:



	2016
	(In thousands)
Assets
Current assets:
Prepayments and other current assets	$	68
Total current assets held for sale	68
Noncurrent assets:
Net property, plant and equipment	93,424
Goodwill	9,737
Less allowance for impairment of assets held for sale	2,311
Total noncurrent assets held for sale	100,850
Total assets held for sale	$	100,918

The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the fourth quarter of 2016, the fair value assessment was determined using the market approach based on the purchase and sale agreement with Tesoro Logistics. The fair value assessment indicated an impairment based on the carrying value exceeding the fair value, which resulted in the Company recording an impairment of $2.3 million ($1.4 million after tax) in the quarter ended December 31, 2016. The fair value of Pronghorn's assets has been categorized as Level 3 in the fair value hierarchy. The impairment was recorded in operation and maintenance expense on the Consolidated Statement of Income.

Discontinued operations

The assets and liabilities of the Company's discontinued operations have been classified as held for sale and the results of operations are shown in income (loss) from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. The Company's consolidated financial statements and accompanying notes for current and prior periods have been restated. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded.

Dakota Prairie Refining On June 24, 2016, WBI Energy entered into a membership interest purchase agreement with Tesoro to sell all of the outstanding membership interests in Dakota Prairie Refining to Tesoro. WBI Energy and Calumet each previously owned 50 percent of the Dakota Prairie Refining membership interests and were equal members in building and operating Dakota Prairie Refinery. To effectuate the sale, WBI Energy acquired Calumet's 50 percent membership interest in Dakota Prairie Refining on June 27, 2016. The sale of the membership interests to Tesoro closed on June 27, 2016. The sale of Dakota Prairie Refining reduces the Company's risk by decreasing exposure to commodity prices.

The Company retained certain liabilities of Dakota Prairie Refining which are reflected in current liabilities held for sale on the Consolidated Balance Sheet at December 31, 2016. Centennial continues to guarantee certain debt obligations of Dakota Prairie Refining; however, Tesoro has agreed to indemnify Centennial for any losses and litigation expenses arising for the guarantee. For more information related to the guarantee, see Note 17.

The carrying amounts of the major classes of assets and liabilities that are classified as held for sale related to the operations of and activity associated with Dakota Prairie Refining on the Company's Consolidated Balance Sheets at December 31 were as follows:



	2016			2015
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	—		$	688
Receivables, net	—			7,693
Inventories	—			13,176
Income taxes receivable	13,987			2,495
Prepayments and other current assets	—			6,214
Total current assets held for sale	13,987			30,266
Noncurrent assets:
Net property, plant and equipment	—			412,717
Other	—			9,627
Total noncurrent assets held for sale	—			422,344
Total assets held for sale	$	13,987		$	452,610
Liabilities
Current liabilities:
Short-term borrowings	$	—		$	45,500
Long-term debt due within one year	—			5,250
Accounts payable	7,425			24,468
Taxes payable	—			1,391
Accrued compensation	—			938
Other accrued liabilities	—			4,953
Total current liabilities held for sale	7,425			82,500
Noncurrent liabilities:
Long-term debt	—			63,750
Deferred income taxes	14		(a)	23,841		(a)
Total noncurrent liabilities held for sale	14			87,591
Total liabilities held for sale	$	7,439		$	170,091


(a)	On the Company's Consolidated Balance Sheets, these amounts were reclassified to noncurrent deferred income tax assets

and are reflected in noncurrent assets held for sale.

The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the second quarter of 2016, the fair value assessment was determined using the market approach based on the sale transaction to Tesoro. The fair value assessment indicated an impairment based on the carrying value exceeding the fair value, which resulted in the Company recording an impairment of $251.9 million ($156.7 million after tax) in the quarter ended June 30, 2016. The impairment was included in operating expenses from discontinued operations. The fair value of Dakota Prairie Refining's assets have been categorized as Level 3 in the fair value hierarchy. At December 31, 2016, the Company has not incurred any material exit and disposal costs related to Dakota Prairie Refining, and does not expect to incur any material exit and disposal costs.

Fidelity In the second quarter of 2015, the Company began the marketing and sale process of Fidelity with an anticipated sale to occur within one year. Between September 2015 and March 2016, the Company entered into purchase and sale agreements to sell all of Fidelity's oil and natural gas assets. The completion of the majority of these sales occurred between October 2015 and April 2016. The sale of Fidelity was part of the Company's strategic plan to grow its capital investments in the remaining business segments and to focus on creating a greater long-term value.

The carrying amounts of the major classes of assets and liabilities that are classified as held for sale related to the operations of Fidelity on the Company's Consolidated Balance Sheets at December 31 were as follows:



	2016			2015
	(In thousands)
Assets
Current assets:
Receivables, net	$	355		$	13,387
Inventories	—			1,308
Income taxes receivable	—			9,665
Prepayments and other current assets	—			221
Total current assets held for sale	355			24,581
Noncurrent assets:
Investments	—			37
Net property, plant and equipment	5,507			793,422
Deferred income taxes	91,098			124,035
Other	161			161
Less allowance for impairment of assets held for sale	938			754,541
Total noncurrent assets held for sale	95,828			163,114
Total assets held for sale	$	96,183		$	187,695
Liabilities
Current liabilities:
Accounts payable	$	141		$	25,013
Taxes payable	19		(a)	1,052
Accrued compensation	—			13,080
Other accrued liabilities	2,358			4,838
Total current liabilities held for sale	2,518			43,983
Total liabilities held for sale	$	2,518		$	43,983


(a)	On the Company's Consolidated Balance Sheets, this amount was reclassified to prepayments and other current assets and

is reflected in current assets held for sale.

At December 31, 2016 and 2015, the Company’s deferred tax assets included in assets held for sale were largely comprised of $89.3 million and $78.9 million, respectively, of federal and state net operating loss carryforwards.

The Company had federal income tax net operating loss carryforwards of $297.2 million and $208.2 million at December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the Company had various state income tax net operating loss carryforwards of $189.1 million and $201.4 million, respectively. The federal net operating loss carryforwards expire in 2036 and 2037 if not utilized. The state net operating loss carryforwards are due to expire between 2023 and 2037. It is likely a portion of the benefit from the state carryforwards will not be realized; therefore, valuation allowances of $500,000 and $300,000 have been provided in 2016 and 2015, respectively.

The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the second quarter of 2016, the fair value assessment was determined using the income and market approaches. The income approach was determined by using the present value of future estimated cash flows. The market approach was based on market transactions of similar properties. The estimated carrying value exceeded the fair value and the Company recorded an impairment of $900,000 ($600,000 after tax) in the second quarter of 2016. In the first quarter of 2016, the fair value assessment was determined using the market approach largely based on a purchase and sale agreement. The estimated fair value exceeded the carrying value and the Company recorded an impairment reversal of $1.4 million($900,000 after tax) in the first quarter of 2016. In the second quarter of 2015, the estimated fair value was determined using the income and the market approaches. The income approach was determined by using the present value of future estimated cash flows. The income approach considered management’s views on current operating measures as well as assumptions pertaining to market forces in the oil and gas industry including estimated reserves, estimated prices, market differentials, estimates of well operating and future development costs and timing of operations. The estimated cash flows were discounted using a rate believed to be consistent with those used by principal market participants. The market approach was provided by a third party and based on market transactions involving similar interests in oil and natural gas properties. The fair value assessment indicated an impairment based on the carrying value exceeding the estimated fair value, which resulted in the Company writing down Fidelity’s assets at June 30, 2015, and recording an impairment of $400.0 million ($252.0 million after tax) during the second quarter of 2015. In the third quarter of 2015, the estimated fair value of Fidelity was determined by agreed upon pricing in the purchase and sale agreements for the assets subject to the agreements, the majority of which closed during the fourth quarter of 2015, including customary purchase price adjustments. The values received in the bid proposals were lower than originally anticipated due to lower commodity prices than those projected in the second quarter of 2015. For those assets for which a purchase and sale agreement had not been entered into at that time, the fair value was based on the market approach utilizing multiples based on similar interests in oil and natural gas properties. The fair value assessment indicated an impairment based on the carrying value exceeding the estimated fair value, which resulted in the Company writing down Fidelity’s assets at September 30, 2015, and recording an impairment of $356.1 million ($224.4 million after tax). In the fourth quarter of 2015, the fair value assessment was determined using the market approach based on purchase and sale agreements. The estimated fair value exceeded the carrying value and the Company recorded an impairment reversal of $1.6 million ($1.0 million after tax) in the fourth quarter of 2015. The impairments were included in operating expenses from discontinued operations. The estimated fair value of Fidelity's assets have been categorized as Level 3 in the fair value hierarchy.

The Company incurred transaction costs of approximately $300,000 in the first quarter of 2016 and $2.5 million in 2015. In addition to the transaction costs, and due in part to the change in plans to sell the assets of Fidelity rather than sell Fidelity as a company, Fidelity incurred and expensed approximately $5.6 million of exit and disposal costs in 2016, and has incurred $10.5 million of exit and disposal costs to date. The Company does not expect to incur any additional material exit and disposal costs. The exit and disposal costs are associated with severance and other related matters and exclude the office lease expiration discussed in the following paragraph.

Fidelity vacated its office space in Denver, Colorado. The Company incurred lease payments of approximately $900,000 in 2016. Lease termination payments of $3.2 million and $3.3 million were made during the second quarter of 2016 and fourth quarter of 2015, respectively. Existing office furniture and fixtures were relinquished to the lessor in the second quarter of 2016.

Historically, the Company used 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.

Prior to the oil and natural gas properties being classified as held for sale, capitalized costs were 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, were used to calculate the ceiling test. Accordingly, the Company was required to write down its oil and natural gas producing properties. The Company recorded a $500.4 million ($315.3 million after tax) noncash write-down in operating expenses from discontinued operations in the first quarter of 2015.

Fidelity previously held commodity derivatives that were not designated as hedging instruments. The amount of gain (loss) recognized in discontinued operations, before tax, was $(18.3) million and $23.4 million in the years ended December 31, 2015 and 2014, respectively.

On February 10, 2014, the Company entered into agreements to purchase working interests and leasehold positions in oil and natural gas production assets in the southern Powder River Basin of Wyoming. The effective date of the acquisition was October 1, 2013, and the closing occurred on March 6, 2014. The total purchase price, including purchase price adjustments, for acquisitions in 2014 was approximately $209.2 million, including the above acquisition which is reflected in discontinued operations. Pro forma financial amounts reflecting the effects of the acquisitions are not presented, as such acquisitions were not material to the Company's financial position or results of operations.

CEM In 2007, Centennial Resources sold CEM to Bicent. In connection with the sale, Centennial Resources agreed to indemnify Bicent and its affiliates from certain third party claims arising out of or in connection with Centennial Resources' ownership or operation of CEM prior to the sale. In addition, Centennial had previously guaranteed CEM's obligations under a construction contract. The Company incurred legal expenses and had a benefit related to the resolution of this matter in the second quarter of 2014, which are reflected in discontinued operations in the consolidated financial statements and accompanying notes.

Dakota Prairie Refining, Fidelity and CEM The reconciliation of the major classes of income and expense constituting pretax income (loss) from discontinued operations, which includes Dakota Prairie Refining, Fidelity and CEM, to the after-tax net income (loss) from discontinued operations on the Company's Consolidated Statements of Income at December 31 were as follows:



	2016			2015			2014
	(In thousands)
Operating revenues	$	123,024		$	363,115		$	547,571
Operating expenses	513,813			1,666,941			386,651
Operating income (loss)	(390,789		)	(1,303,826		)	160,920
Other income	306			3,149			1,898
Interest expense	1,753			2,124			145
Income (loss) from discontinued operations before income taxes	(392,236		)	(1,302,801		)	162,673
Income taxes	(91,882		)	(468,721		)	53,362
Income (loss) from discontinued operations	(300,354		)	(834,080		)	109,311
Loss from discontinued operations attributable to noncontrolling interest	(131,691		)	(35,256		)	(3,895		)
Income (loss) from discontinued operations attributable to the Company	$	(168,663	)	$	(798,824	)	$	113,206

The pretax loss from discontinued operations attributable to the Company, related to the operations of and activity associated with Dakota Prairie Refining, was $253.5 million, $31.5 million and $3.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.