Basis of Presentation and Significant Accounting Policies

Basis of presentation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are 100% owned, after all significant intercompany accounts and transactions have been eliminated upon consolidation.

On August 18, 2014, the Company's Board of Directors declared a 2-for-1 stock split of the Company's common stock to be effected in the form of a stock dividend. The stock dividend was distributed on September 10, 2014 to shareholders of record as of September 3, 2014. All previously reported common stock and earnings per share amounts have been retroactively adjusted in the accompanying financial statements and related notes to reflect the stock split.

This report has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Because this is an interim period filing presented using a condensed format, it does not include all disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”), although the Company believes the disclosures are adequate to make the information not misleading. You should read this Form 10-Q together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.

The condensed consolidated financial statements as of September 30, 2014 and for the three and nine month periods ended September 30, 2014 and 2013 are unaudited. The condensed consolidated balance sheet as of December 31, 2013 was derived from the audited balance sheet included in the 2013 Form 10-K. The Company has evaluated events or transactions through the date this report on Form 10-Q was filed with the SEC in conjunction with its preparation of these condensed consolidated financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure and estimation of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. The most significant of the estimates and assumptions that affect reported results are the estimates of the Company’s crude oil and natural gas reserves, which are used to compute depreciation, depletion, amortization and impairment of proved crude oil and natural gas properties. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation in accordance with U.S. GAAP have been included in these unaudited interim condensed consolidated financial statements. The results of operations for any interim period are not necessarily indicative of the results of operations that may be expected for any other interim period or for an entire year.

Inventories

Inventories are stated at the lower of cost or market and consist of the following:



In thousands	September 30, 2014		December 31, 2013
Tubular goods and equipment	$	13,586	$	11,139
Crude oil	68,978		43,301
Total	$	82,564	$	54,440

Crude oil inventories are valued at the lower of cost or market using the first-in, first-out inventory method. Crude oil inventories consist of the following volumes:

Earnings per share

Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding for the period. Diluted net income per share reflects the potential dilution of non-vested restricted stock awards, which are calculated using the treasury stock method. The following table presents the calculation of basic and diluted weighted average shares outstanding and net income per share for the three and nine months ended September 30, 2014 and 2013. Weighted average shares and net income per share amounts for the three and nine months ended September 30, 2013 have been retroactively adjusted to reflect the Company's 2-for-1 stock split occurring in September 2014.



	Three months ended September 30,				Nine months ended September 30,
In thousands, except per share data	2014		2013		2014		2013
Income (numerator):
Net income - basic and diluted	$	533,521	$	167,498	$	863,293	$	631,395
Weighted average shares (denominator):
Weighted average shares - basic	368,814		368,139		368,740		368,072
Non-vested restricted stock	1,714		1,622		1,892		1,485
Weighted average shares - diluted	370,528		369,761		370,632		369,557
Net income per share:
Basic	$	1.45	$	0.45	$	2.34	$	1.72
Diluted	$	1.44	$	0.45	$	2.33	$	1.71

New accounting pronouncement

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that an entity shall recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard generally requires an entity to identify performance obligations in its contracts, estimate the amount of variable consideration to be received in the transaction price, allocate the transaction price to each separate performance obligation, and recognize revenue as obligations are satisfied. The standard will be effective for annual and interim periods beginning after December 15, 2016. The standard allows for either full retrospective adoption, meaning the standard is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company is evaluating the impact of the provisions of ASU 2014-09; however, the standard is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. In the prior year, the Company presented charges related to natural gas transportation and processing under the caption “Production taxes and other expenses” or “Production and other expenses to affiliates” in the unaudited condensed consolidated statements of income. Such charges, which totaled $8.9 million for the three months ended September 30, 2013, including transactions with an affiliate totaling $1.2 million, and $24.2 million for the nine months ended September 30, 2013, including transactions with an affiliate totaling $3.5 million, have been reclassified to be netted within “Crude oil and natural gas sales” or "Crude oil and natural gas sales to affiliates", as applicable, in order to conform to the current year presentation. The reclassifications had no impact on previously reported operating income, net income, current assets, total assets, current liabilities, total liabilities, stockholders' equity or cash flows.

September 30, 2014

December 31, 2013

Crude oil line fill and tank requirements

Temporarily stored crude oil