Revenues

Adoption of new revenue recognition and disclosure guidance

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which generally requires an entity to identify performance obligations in its contracts, estimate the amount of consideration to be received, allocate the consideration to each separate performance obligation, and recognize revenue as obligations are satisfied. Additionally, the standard requires expanded disclosures related to revenue recognition.

Subsequent to the issuance of ASU 2014-09, the FASB issued additional guidance to assist entities with implementation efforts, including the issuance of ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), pertaining to the presentation of revenues on a gross basis (revenues presented separately from associated expenses) versus a net basis. This guidance requires an entity to record revenue on a gross basis if it controls a promised good or service before transferring it to a customer, whereas an entity records revenue on a net basis if its role is to arrange for another entity to provide the goods or services to a customer. Applying the guidance in ASU 2016-08 requires significant judgment in determining the point in time when control of products transfers to customers.

The Company adopted the new revenue recognition and presentation guidance on January 1, 2018 using a modified retrospective transition approach to all applicable contracts at the date of initial application, whereby the standard has been applied for periods commencing after December 31, 2017 and prior period results have not been adjusted to conform to current presentation. Adoption of the new guidance had no cumulative effect impact on the Company's retained earnings at January 1, 2018.

The new guidance does not have a material impact on the timing of the Company’s revenue recognition or its financial position, results of operations, net income, or cash flows, but does impact the Company's presentation of revenues and expenses under the gross-versus-net presentation guidance in ASU 2016-08. In years prior to 2018, the Company generally presented its revenues net of costs incurred to transport its production to market. Under the new guidance, revenues and transportation expenses associated with production originating from the Company’s operated properties are now reported on a gross basis as further discussed below. The changes from net to gross presentation resulted in an increase in revenues and a corresponding increase in separately reported transportation expenses, with no net effect on the Company’s results of operations, net income, or cash flows for the three and nine months ended September 30, 2018.

The following table reflects the change in presentation of revenues and applicable expenses on the Company's 2018 results under the new and previous guidance.



	Three months ended September 30, 2018								Nine months ended September 30, 2018
In thousands	New Standard			Prior Presentation			Change		New Standard			Prior Presentation			Change
Revenues:
Crude oil and natural gas sales	$	1,273,238		$	1,227,230		$	46,008	$	3,524,618		$	3,382,059		$	142,559
Loss on natural gas derivatives, net	(2,025		)	(2,025		)	—		(4,536		)	(4,536		)	—
Crude oil and natural gas service operations	10,938			10,938			—		40,210			40,210			—
Total revenues	$	1,282,151		$	1,236,143		$	46,008	$	3,560,292		$	3,417,733		$	142,559
Operating costs and expenses:
Transportation expenses	$	46,008		$	—		$	46,008	$	142,559		$	—		$	142,559
Net income	$	314,169		$	314,169		$	—	$	790,580		$	790,580		$	—

Revenue from contracts with customers

Below is a discussion of the nature, timing, and presentation of revenues arising from the Company's major revenue-generating arrangements.

Operated crude oil revenues – The Company pays third parties to transport the majority of its operated crude oil production from lease locations to downstream market centers, at which time the Company's customers take title and custody of the product in exchange for prices based on the particular market where the product was delivered. Operated crude oil revenues are recognized during the month in which control transfers to the customer and it is probable the Company will collect the consideration it is entitled to receive. Crude oil sales proceeds from operated properties are generally received by the Company within one month after the month in which a sale has occurred. Operated crude oil revenues and transportation expenses are reported on a gross basis, as the Company controls the operated production prior to its transfer to customers. Transportation expenses associated with the Company's operated crude oil production totaled $39.3 million and $119.9 million for the three and nine months ended September 30, 2018, respectively.

Operated natural gas revenues – The Company sells the majority of its operated natural gas production to midstream customers at its lease locations under multi-year term contracts based on market prices in the field where the sales occur. Under these arrangements, the midstream customers obtain control of the unprocessed gas stream at the lease location and the Company's revenues from each sale are determined using contractually agreed pricing formulas which contain multiple components, including the volume and Btu content of the natural gas sold, the midstream customer's proceeds from the sale of residue gas and natural gas liquids ("NGLs") at secondary downstream markets, and contractual pricing adjustments reflecting the midstream customer's estimated recoupment of its investment over time. Such revenues are recognized net of pricing adjustments applied by the midstream customer during the month in which control transfers to the customer at the delivery point and it is probable the Company will collect the consideration it is entitled to receive. Natural gas sales proceeds from operated properties are generally received by the Company within one month after the month in which a sale has occurred.

Under certain arrangements, the Company may elect to take a volume of processed residue gas and/or NGLs in-kind at the tailgate of the midstream customer's processing plant in lieu of a monetary settlement based on the customer's proceeds for sale of those processed products. When the Company elects to do so, it pays third parties to transport the processed products which it took in-kind to downstream delivery points, where it then sells the products to customers at prices applicable to those downstream markets. In such situations, operated revenues are recognized during the month in which control transfers to the customer at the delivery point and it is probable the Company will collect the consideration it is entitled to receive. Operated sales proceeds are generally received by the Company within one month after the month in which a sale has occurred. In these scenarios, the Company's revenues include the pricing adjustments applied by the midstream processing entity according to the applicable contractual pricing formula, but exclude the transportation expenses the Company incurs to transport the processed products to downstream customers. Transportation expenses associated with these arrangements totaled $6.7 million and $22.6 million for the three and nine months ended September 30, 2018, respectively, comprised entirely of costs to transport processed residue gas.

Non-operated crude oil and natural gas revenues – The Company's proportionate share of production from non-operated properties is marketed at the discretion of the operators. For non-operated properties, the Company receives a net payment from the operator representing its proportionate share of sales proceeds which is net of costs incurred by the operator, if any. Such non-operated revenues are recognized at the net amount of proceeds to be received by the Company during the month in which production occurs and it is probable the Company will collect the consideration it is entitled to receive. Proceeds are generally received by the Company within two to three months after the month in which production occurs.

Natural gas derivative revenues – See Note 5. Derivative Instruments for discussion of the Company's accounting for its derivative instruments.

Revenues from service operations – Revenues from the Company's crude oil and natural gas service operations consist primarily of revenues associated with water gathering, recycling, and disposal activities and the treatment and sale of crude oil reclaimed from waste products. Revenues associated with such activities, which are derived using market-based rates or rates commensurate with industry guidelines, are recognized during the month in which services are performed, the Company has an unconditional right to receive payment, and collectability is probable. Payment is generally received by the Company within one month after the month in which services are provided.

Disaggregation of crude oil and natural gas revenues

The following table presents the disaggregation of the Company's crude oil and natural gas revenues for the three and nine months ended September 30, 2018.



	Three months ended September 30, 2018						Nine months ended September 30, 2018
In thousands	North Region		South Region		Total		North Region		South Region		Total
Crude oil revenues:
Operated properties	$	634,251	$	159,506	$	793,757	$	1,791,045	$	443,562	$	2,234,607
Non-operated properties	225,513		19,288		244,801		604,700		52,415		657,115
Total crude oil revenues	859,764		178,794		1,038,558		2,395,745		495,977		2,891,722
Natural gas revenues:
Operated properties	60,381		140,168		200,549		153,627		388,610		542,237
Non-operated properties	16,397		17,734		34,131		44,058		46,601		90,659
Total natural gas revenues	76,778		157,902		234,680		197,685		435,211		632,896
Crude oil and natural gas sales	$	936,542	$	336,696	$	1,273,238	$	2,593,430	$	931,188	$	3,524,618

Timing of revenue recognition
Goods transferred at a point in time	$	936,542	$	336,696	$	1,273,238	$	2,593,430	$	931,188	$	3,524,618
Goods transferred over time	—		—		—		—		—		—
	$	936,542	$	336,696	$	1,273,238	$	2,593,430	$	931,188	$	3,524,618

Performance obligations

The Company satisfies the performance obligations under its crude oil and natural gas sales contracts upon delivery of its production and related transfer of control to customers. Upon delivery of production, the Company has a right to receive consideration from its customers in amounts determined by the sales contracts.

All of the Company's outstanding crude oil sales contracts at September 30, 2018 are short-term in nature with contract terms of less than one year. For such contracts, the Company has utilized the practical expedient in Accounting Standards Codification ("ASC") 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations, if any, if the performance obligation is part of a contract that has an original expected duration of one year or less.

The majority of the Company's operated natural gas production is sold at lease locations to midstream customers under multi-year term contracts. For such contracts having a term greater than one year, the Company has utilized the practical expedient in ASC 606-10-50-14A which indicates an entity is not required to disclose the transaction price allocated to remaining performance obligations, if any, if variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our sales contracts, whether for crude oil or natural gas, each unit of production delivered to a customer represents a separate performance obligation; therefore, future volumes to be delivered are wholly unsatisfied at period-end and disclosure of the transaction price allocated to remaining performance obligations is not applicable.

Contract balances

Under the Company’s crude oil and natural gas sales contracts or activities that give rise to service revenues, the Company recognizes revenue after its performance obligations have been satisfied, at which point the Company has an unconditional right to receive payment. Accordingly, the Company’s commodity sales contracts and service activities generally do not give rise to contract assets or contract liabilities under ASC Topic 606. Instead, the Company's unconditional rights to receive consideration are presented as a receivable within "Receivables–Crude oil and natural gas sales" or "Receivables–Joint interest and other, net", as applicable, in its condensed consolidated balance sheets.

Revenues from previously satisfied performance obligations

To record revenues for commodity sales, at the end of each month the Company estimates the amount of production delivered and sold to customers and the prices to be received for such sales. Differences between estimated revenues and actual amounts received for all prior months are recorded in the month payment is received from the customer and are reflected in the financial statements within the caption "Crude oil and natural gas sales". Revenues recognized during the three and nine months ended September 30, 2018 related to performance obligations satisfied in prior reporting periods were not material.