Property Transactions

12 Months Ended

Dec. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

Property Transactions

Property Transactions

Sale of North Sea Properties During 2013, we closed three sales of non-operated working interest properties located in the North Sea. The sales resulted in a $65 million gain based on net sales proceeds of $56 million for the fields.

During 2012, we closed the sale of our 30% non-operated working interest in the Dumbarton and Lochranza fields located in the North Sea. Proceeds from the transaction were $117 million and included final closing adjustments from the effective date of January 1, 2012. The net book value of assets sold was $255 million. Asset retirement obligations associated with the sale were $55 million. We reversed a deferred tax liability and recognized a corresponding income tax benefit of $99 million related to the sale.

As of December 31, 2013, all the properties remaining in our North Sea geographical segment are included in assets held for sale in our consolidated balance sheet. Our consolidated statements of operations have been reclassified for all periods presented to reflect the operations of our North Sea geographical segment as discontinued.

Included in income before income taxes during 2012, below, is exploratory expense of $27 million related to our Selkirk field. During the fourth quarter of 2012, the nearby Bligh well, a potential co-development candidate for Selkirk, was drilled. Bligh encountered noncommercial quantities of hydrocarbons; therefore, we determined that Selkirk was uneconomic for joint development.

Upon reclassification as held for sale, depreciation, depletion, and amortization (DD&A) ceased for the North Sea segment. Our long-term debt is recorded at the consolidated level; therefore no interest expense has been allocated to discontinued operations.

Summarized results of discontinued operations are as follows:

	Year Ended December 31,
(millions)	2013		2012		2011
Oil and Gas Sales	$	37	$	208	$	357
Income Before Income Taxes	12		101		215
Income Tax Expense	6		55		174
Operating Income, Net of Tax	6		46		41
Gain on Sale, Net of Tax	65		16		—
Discontinued Operations, Net of Tax	$	71	$	62	$	41

Sale of Onshore US Properties During 2013 and 2012, we closed the sales of non-core onshore US crude oil and natural gas properties. The information regarding the assets sold is as follows:

	Year Ended December 31,
(millions)	2013			2012
Cash Proceeds	$	150		$	1,044
Less
Net Book Value of Assets Sold	(117		)	(836		)
Goodwill Allocated to Assets Sold	(8		)	(61		)
Asset Retirement Obligations Associated with Assets Sold	8			20
Other Closing Adjustments	3			(13		)
Gain on Divestitures	$	36		$	154

We continue to market non-core onshore US properties; certain of these assets met the criteria for reclassification as assets held for sale at December 31, 2013.

DJ Basin Acreage Exchange In October 2013, we closed an acreage exchange agreement with another operator related to our position in the DJ Basin. Each party exchanged approximately 50,000 net acres within the same field. The exchange consolidates our acreage into large contiguous blocks, which will provide the opportunity to optimize drilling, production, and gathering activities and add more extended-reach lateral wells to our development program.These opportunities provide efficiencies by owning and operating properties located within a smaller geographical area, with the potential to significantly enhance field economics. In accordance with guidance for oil and gas property conveyances, the transaction was accounted for at net book value, with no gain or loss recognized. We received $105 million in cash related to reimbursement of capital expenditures and other normal closing adjustments from the effective date of January 1, 2013 to closing date, which was recorded as a reduction in the net book value of the field.

Marcellus Shale Joint Venture   On September 30, 2011, we closed an agreement with a subsidiary of CONSOL Energy Inc. (CONSOL) for the development of Marcellus Shale properties in southwest Pennsylvania and northwest West Virginia. Under the agreement, we acquired a 50% interest in approximately 628,000 net undeveloped acres, certain producing properties, and existing infrastructure, such as pipeline and gathering facilities, for approximately $1.3 billion, including post-closing adjustments. We and CONSOL also formed CONE Gathering LLC (CONE) to own and operate the existing and future infrastructure. We paid the final installment payment of $328 million as of December 31, 2013. See Note 10. Long-Term Debt. 

As part of the joint venture transaction, we agreed to fund one-third of CONSOL’s 50% working interest share of future drilling and completion costs, capped at $400 million each year, up to approximately $2.1 billion (CONSOL Carried Cost Obligation), which is expected to be paid out over a multi-year period. The CONSOL Carried Cost Obligation is suspended if average Henry Hub natural gas prices fall and remain below $4.00 per MMBtu in any three consecutive month period and will remain suspended until average Henry Hub natural gas prices are above $4.00 per MMBtu for three consecutive months. The CONSOL Carried Cost Obligation was suspended during 2011 - 2013 due to low natural gas prices.

The final purchase price allocation resulted in the following:

(millions)	December 31, 2012
Unproved Oil and Gas Properties	$	803
Proved Oil and Gas Properties	386
Investment in CONE Gathering LLC	69
Total Assets Acquired (1)	$	1,258

⁽¹⁾  Total reflects impact of $17 million imputed interest on CONSOL installment payments.

We used an income approach to estimate the fair value of the proved oil and gas properties as of the acquisition date. We utilized a discounted cash flow model which took into account the following inputs to arrive at estimates of future net cash flows: 

• estimated quantities of crude oil and natural gas reserves prepared by our qualified petroleum engineers;

• management’s estimates of future commodity prices based on NYMEX Henry Hub natural gas futures prices and adjusted for estimated location and quality differentials; 

• estimated future production rates based on our experience with similar properties which we operate; and

• estimated timing and amounts of future operating and development costs based on our experience with similar properties which we operate. 

We discounted the resulting future net cash flows using a market-based weighted average cost of capital rate determined appropriate at the acquisition date. The fair value of the proved producing properties is considered a Level 3 fair value measurement. 

Exit from Ecuador   In May 2011, we transferred our assets in Ecuador to the Ecuadorian government.  We received cash proceeds of $73 million for the transfer of our offshore Amistad field assets, onshore gas processing facilities and Block 3 PSC and the assignment of the Machala Power electricity concession and its associated assets. Our net book value for the assets had been reduced due to previous impairment charges, resulting in a pre-tax gain of $25 million.