Basis of Presentation and Significant Accounting Policies

Basis of presentation

The condensed consolidated financial statements as of September 30, 2018 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.

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 Quarterly Report on Form 10-Q (“Form 10-Q”) together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 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, 2018 and for the three and nine month periods ended September 30, 2018 and 2017 are unaudited. The condensed consolidated balance sheet as of December 31, 2017 was derived from the audited balance sheet included in the 2017 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 estimates and assumptions impacting reported results are 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.

Earnings per share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding for the period. In periods where the Company has net income, diluted earnings 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 (loss) per share for the three and nine months ended September 30, 2018 and 2017.



	Three months ended September 30,				Nine months ended September 30,
In thousands, except per share data	2018		2017		2018		2017
Net income (loss) (numerator)	$	314,169	$	10,621	$	790,580	$	(52,467	)
Weighted average shares (denominator):
Weighted average shares - basic	371,960		371,142		371,810		371,029
Non-vested restricted stock (1)	2,663		1,873		2,952		—
Weighted average shares - diluted	374,623		373,015		374,762		371,029
Net income (loss) per share:
Basic	$	0.84	$	0.03	$	2.13	$	(0.14	)
Diluted	$	0.84	$	0.03	$	2.11	$	(0.14	)


(1)	For the nine months ended September 30, 2017, the Company had a net loss and therefore the potential dilutive effect of approximately 2,558,900 weighted average non-vested restricted shares were not included in the calculation of diluted net loss per share because to do so would have been anti-dilutive to the computation.

Inventories

Inventory is comprised of crude oil held in storage or as line fill in pipelines, pipeline imbalances, and tubular goods and equipment to be used in the Company's exploration and development activities. Crude oil inventories are valued at the lower of cost or market primarily using the first-in, first-out inventory method. Tubular goods and equipment are valued primarily using a weighted average cost method applied to specific classes of inventory items.

The components of inventory as of September 30, 2018 and December 31, 2017 consisted of the following:



In thousands	September 30, 2018		December 31, 2017
Tubular goods and equipment	$	15,829	$	14,946
Crude oil	88,401		82,460
Total	$	104,230	$	97,406

Adoption of new accounting pronouncements

Revenue recognition and presentation – In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all previously existing revenue recognition guidance under U.S. GAAP. Subsequently, 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). This new guidance became effective for reporting periods beginning after December 15, 2017. The Company adopted the new revenue recognition and presentation guidance on January 1, 2018 as required. See Note 4. Revenues for discussion of the adoption impact and the applicable disclosures required by the new guidance.

New accounting pronouncements not yet adopted

Leases – In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires companies to recognize a right of use asset and related liability on the balance sheet for the rights and obligations arising from leases with durations greater than 12 months. The standard is effective for interim and annual reporting periods beginning after December 15, 2018. The Company plans to adopt the new standard using the simplified transition method prescribed by ASU 2018-11, Leases (Topic 842): Targeted Improvements, whereby the Company will initially apply the new standard as of the January 1, 2019 adoption date and will recognize a cumulative-effect adjustment to the opening balance of retained earnings, if any, upon adoption in lieu of retrospectively applying the new standard to pre-adoption periods.

The Company is nearing completion of its evaluation of the impact of ASU 2016-02 on its financial statements, accounting policies, and internal controls and is working to finalize its implementation of systems and processes to capture, classify, and account for leases within the scope of the new guidance and to comply with the related disclosure requirements.

Based on its current commitments, the Company anticipates it will be required to recognize lease assets and liabilities related to drilling rig commitments, certain equipment rentals and leases, certain surface use agreements, and potentially other arrangements. The Company does not believe any of its current firm transportation agreements will qualify as leases.

If the Company was to adopt ASU 2016-02 as of September 30, 2018 based on long-term lease commitments in place as of that date, the Company estimates its lease assets and liabilities would total approximately $25 million, primarily representing minimum future payments associated with drilling rig commitments and surface use agreements with contractual durations in excess of one year. This estimate will change with the passage of time and from changes in the nature, timing, and extent of the Company's contractual arrangements from period to period and may not be indicative of the actual value of lease assets and liabilities to be recognized upon formal adoption of the new guidance on January 1, 2019.

Credit losses – In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The standard is effective for interim and annual periods beginning after December 15, 2019 and shall be applied using a modified retrospective approach resulting in a cumulative effect adjustment to retained earnings upon adoption. The Company continues to evaluate the new standard and is unable to estimate its financial statement impact at this time; however, the impact is not expected to be material. Historically, the Company's credit losses on crude oil and natural gas sales receivables and joint interest receivables have been immaterial.