NATURAL GAS AND OIL PROPERTIES

6 Months Ended

Jun. 30, 2021

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

The Company utilizes the full cost method of accounting for costs related to the exploration, development and acquisition of natural gas and oil properties. Under this method, all such costs (productive and nonproductive), including salaries, benefits and other internal costs directly attributable to these activities, are capitalized on a country-by-country basis and amortized over the estimated lives of the properties using the units-of-production method. These capitalized costs are subject to a ceiling test that limits such pooled costs, net of applicable deferred taxes, to the aggregate of the present value of future net revenues attributable to proved natural gas, oil and NGL reserves discounted at 10% (standardized measure). Any costs in excess of the ceiling are written off as a non-cash expense. The expense may not be reversed in future periods, even though higher natural gas, oil and NGL prices may subsequently increase the ceiling. Companies using the full cost method are required to use the average quoted price from the first day of each month from the previous 12 months, including the impact of derivatives designated for hedge accounting, to calculate the ceiling value of their reserves. The Company had no hedge positions that were designated for hedge accounting as of June 30, 2021. Prices used to calculate the ceiling value of reserves were as follows:


	June 30, 2021		June 30, 2020
Natural gas (per MMBtu)	$	2.43	$	2.07
Oil (per Bbl)	$	49.78	$	47.17
NGLs (per Bbl)	$	17.06	$	8.87

Using the average quoted prices above, adjusted for market differentials, the Company’s net book value of its United States natural gas and oil properties did not exceed the ceiling amount at June 30, 2021. Decreases in market prices as well as changes in production rates, levels of reserves, evaluation of costs excluded from amortization, future development costs and production costs could result in future ceiling test impairments.

No impairment expense was recorded for the six months ended June 30, 2021 in relation to the recently acquired Montage natural gas and oil properties. These properties were recorded at fair value as of November 13, 2020, in accordance with Accounting Standards Codification (“ASC”) Topic 820 – Fair Value Measurement. In the fourth quarter of 2020, pursuant to SEC guidance, the Company determined that the fair value of the properties acquired at the closing of the Montage Merger clearly exceeded the related full-cost ceiling limitation beyond a reasonable doubt and received a waiver from the SEC to exclude the properties acquired in the Montage Merger from the ceiling test calculation. This waiver was granted for all reporting periods through and including the quarter ending September 30, 2021, as long as the Company can continue to demonstrate that the fair value of properties acquired clearly exceeds the full cost ceiling limitation beyond a reasonable doubt in each reporting period. As part of the waiver received from the SEC, the Company is required to disclose what the full cost ceiling test impairment amounts for all periods presented in each applicable quarterly and annual filing would have been if the waiver had not been granted. The fair value of the properties acquired in the Montage Merger was based on forward natural gas and oil pricing existing at the date of the Montage Merger, and the Company affirmed that there has not been a material decline

to the fair value of these acquired assets since the Montage Merger. The properties acquired in the Montage Merger have an unamortized cost at June 30, 2021 of $1,130 million. Due to the improvement in commodity prices in the second quarter of 2021, no impairment charge would have been recorded for the three and six months ended June 30, 2021 had the recently acquired Montage natural gas and oil properties been included in the full cost ceiling test.

The Company’s net book value of its United States natural gas and oil properties exceeded the ceiling by $1.5 billion at March 31, 2020 and $650 million at June 30, 2020, resulting in a non-cash ceiling test impairment for the first and second quarters of 2020.