Note 3. Acquisitions and Divestitures

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 50% interests in approximately 628,000 net undeveloped acres, certain producing properties, and existing infrastructure 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 have paid a total of $596 million to date, and, other than post-closing adjustments, the remainder will be paid in two annual installments. See Note 8. Equity Method Investments and Note 12. 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, up to approximately $2.1 billion (CONSOL Carried Cost Obligation). The CONSOL Carried Cost Obligation is expected to extend over approximately eight years or more. The CONSOL Carried Cost Obligation is capped at $400 million in each calendar year and will be 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 carry terms ensure economic alignment with our partner in periods of low natural gas prices. Amounts paid pursuant to the CONSOL Carried Cost Obligation will be recorded as increases in property, plant and equipment in our consolidated balance sheets and as investing activities in our consolidated statements of cash flows. See Note 21. Commitments and Contingencies.

In connection with the joint venture transaction and formation of CONE, we recorded the following:

	December 31,
	2011
(millions)
Unproved Oil and Gas Properties	$	853
Proved Oil and Gas Properties		386
Initial Investment in CONE Gathering LLC		69
Total Assets Acquired (1)	$	1,308

(1) Total reflects impact of discount on CONSOL installment payments.

To estimate the fair value of the proved oil and gas properties as of the acquisition date, we used an income approach. 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. See, Note 16. Fair Value Measurements and Disclosures.

Certain data necessary to complete the final purchase price allocation for proved oil and gas properties is not yet available, and includes, but is not limited to, final appraisals of assets acquired and liabilities assumed. We expect to complete the final purchase price allocation during the 12-month period following the acquisition date, during which time the preliminary allocation may be revised.

Gas Gathering Agreement with CONE In connection with the Marcellus Shale Joint Venture described above, we entered into a 50-year gathering and marketing agreement with CONE. Under the terms of the gathering and marketing agreement, we will pay CONE a minimum annual revenue commitment (MARC). The MARC will be adjusted annually based on projected gathering volumes, operating expenses, capital expenditures, and other factors. For fiscal year 2011, the MARC totaled approximately $3 million. See Note 21. Commitments and Contingencies.

We also have agreed to fund an annual work program for the construction of additional pipeline assets to receive and deliver production from future wells. Amounts to be contributed in future years to fund our proportionate share of the annual work program will be dependent upon anticipated production locations, volumes and other factors. We account for our 50% interest in CONE using the equity method; therefore, our share of income is reported as income from equity method investees in our consolidated statements of operations. Our investment in CONE is reported as investment in equity method investee in our consolidated balance sheets and reflects our cash contributions to the entity. See Note 8. Equity Method Investments.

Exit from Ecuador On November 25, 2010 the government of Ecuador terminated the Block 3 PSC (100% working interest) with our subsidiary, EDC Ecuador Ltd. as we had not negotiated a service contract on Block 3 in accordance with the terms of a newly enacted hydrocarbon law. The hydrocarbon law aimed to change current production-sharing arrangements into service contracts and provided for renegotiation of certain contracts.

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. We did not consider the property disposition material for discontinued operations presentation.

DJ Basin Asset Acquisition In March 2010, we acquired substantially all of the US Rocky Mountain assets of Petro-Canada Resources (USA) Inc. and Suncor Energy (Natural Gas) America Inc. for $498 million. The acquisition included properties located in the DJ Basin, one of our core operating areas. The total purchase price was allocated to the proved and unproved properties acquired based on fair values at the acquisition date.

The total purchase price and allocation of the total purchase price are as follows:

	December 31,
	2010
(millions)
Total Purchase Price
Cash Paid	$	458
Net Liabilities Assumed		40
Total	$	498

Allocation of Total Purchase Price
Proved Oil and Gas Properties	$	352
Unproved Oil and Gas Properties		146
Total	$	498

Sale of Onshore US Assets In August 2010, we sold non-core assets in the Mid-Continent and Illinois Basin areas. Information regarding the assets sold is as follows:

	Year Ended
	December 31,
	2010
(millions)
Cash Proceeds	$	552
Less
Net Book Value of Assets Sold		(394	)
Goodwill Allocated to Assets Sold		(61	)
Asset Retirement Obligations Associated with Assets Sold		10
Other Closing Adjustments		3
Gain on Asset Sale	$	110