BUSINESS COMBINATION

In January 2018, we closed the acquisition of properties from Bayswater Exploration and Production LLC (the "Bayswater Acquisition") for approximately $202.0 million in cash, including $21.0 million deposited into an escrow account in September 2017, subject to certain customary post-closing adjustments. The $21.0 million deposit was included in other assets on our December 31, 2017 condensed consolidated balance sheet. We acquired approximately 7,400 net acres, approximately 220 gross drilling locations and 24 operated horizontal wells that were either drilled uncompleted wells ("DUCs") or in-process wells at the time of closing.

The estimated allocation of the assets acquired and the liabilities assumed in the acquisition are presented below and are subject to customary post-closing adjustments. Adjustments to the preliminary purchase price stem from final settlement of the proceeds from operating activities and additional information we obtained about facts and circumstances that existed at the acquisition date that impact the underlying value of certain assets acquired and current liabilities assumed. Such adjustments primarily relate to sales, operating expenses and capital costs from the effective date through closing.

The details of the estimated purchase price and the allocation of the purchase price for the transaction, are presented below (in thousands):



	June 30, 2018
Acquisition costs:
Cash	$	170,560
Deposit made in prior period	21,000
Total cash consideration	191,560
Other purchase price adjustments	10,422
Total acquisition costs	$	201,982

Recognized amounts of identifiable assets acquired and liabilities assumed:
Assets acquired:
Current assets	$	517
Crude oil and natural gas properties - proved	207,816
Other assets	2,796
Total assets acquired	211,129
Liabilities assumed:
Current liabilities	(4,460		)
Asset retirement obligations	(4,687		)
Total liabilities assumed	(9,147		)
Total identifiable net assets acquired	$	201,982

This transaction was accounted for under the acquisition method. Accordingly, we conducted assessments of the net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition were expensed as incurred. The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market, and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of crude oil and natural gas properties include estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows, lease terms and expirations and a market-based weighted-average cost of capital rate. The allocation of the value to the underlying leases also requires significant judgment and is based on a combination of comparable market transactions, the term and conditions associated with the individual leases, our ability and intent to develop specific leases and our initial assessment of the underlying relative value of the leases given our knowledge of the geology at the time of closing. These inputs require significant judgments and estimates by management at the time of the valuation.

The results of operations for the Bayswater Acquisition for the three and six months ended June 30, 2018 have been included in our condensed consolidated financial statements, including approximately $14.5 million and $21.8 million, respectively, of total revenue, $8.3 million and $12.0 million, respectively, of income from operations and $0.12 and $0.18, respectively, of diluted earnings per share. Pro forma results of operations for the Bayswater Acquisition showing results as if the acquisition had been completed as of January 1, 2017 would not have been material to our condensed consolidated financial statements for the three and six months ended June 30, 2017.