Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations [Abstract]

Discontinued Operations

(4) Discontinued Operations

During the third quarter of 2010, the Company closed a transaction with Wapiti (the “2010 Wapiti Transaction”), selling all or a portion of the Company’s interest in various non-core assets primarily located in Colorado, Texas, and Wyoming for gross proceeds of $130.0 million. During the three months ended June 30, 2011, the Company closed the 2011 Wapiti Transaction, selling the remaining portion of its interests in non-core assets primarily located in Texas and Wyoming for gross cash proceeds of approximately $43.2 million. In accordance with accounting standards, the results of operations relating to these properties have been reflected as discontinued operations for all periods presented. In addition, the assets and liabilities related to the oil and gas properties in the 2011 Wapiti Transaction have been separately reflected in the accompanying consolidated balance sheet as of December 31, 2010 as assets held for sale and liabilities related to assets held for sale.

In separate transactions in 2010, the Company sold its interest in the Howard Ranch field and the Laurel Ridge field and has included these properties in discontinued operations as well.

During the three months ended March 31, 2011, the Board of Directors of DHS engaged transaction advisors to commence a strategic alternatives process, focused on a sale of DHS or substantially all of its assets. As such, in accordance with accounting standards, the results of operations relating to DHS have been reflected as discontinued operations. In addition, the assets and liabilities of DHS have been separately reflected in the accompanying consolidated balance sheets as assets held for sale and liabilities related to assets held for sale.

The following table shows the oil and gas segment and drilling segment revenues and expenses included in discontinued operations for the above mentioned oil and gas properties for the three months ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended									Three Months Ended
	June 30, 2011									June 30, 2010
	Oil & Gas			Drilling			Total			Oil & Gas			Drilling			Total
Revenues:
Oil and gas sales	$	4,594		$	—		$	4,594		$	13,504		$	—		$	13,504
Contract drilling and trucking fees		—			12,129			12,129			—			11,064			11,064
Total Revenues		4,594			12,129			16,723			13,504			11,064			24,568
Operating Expenses:
Lease operating expense		1,307			—			1,307			2,943			—			2,943
Transportation expense		12			—			12			799			—			799
Production taxes		321			—			321			792			—			792
Depreciation, depletion, amortization and accretion — oil and gas		1,286			—			1,286			9,605			—			9,605
Impairment provision(1)		—			—			—			93,064			—			93,064
Drilling and trucking operating expenses		—			9,406			9,406			—			8,123			8,123
Depreciation and amortization — drilling and trucking(2)		—			—			—			—			5,226			5,226
General and administrative expense		—			1,051			1,051			—			992			992
Total operating expenses		2,926			10,457			13,383			107,203			14,341			121,544
Operating income (loss)		1,668			1,672			3,340			(93,699	)		(3,277	)		(96,976	)
Other income and (expense):
Interest expense and financing costs, net		—			(2,091	)		(2,091	)		—			(1,775	)		(1,775	)
Other income (expense)		—			124			124			—			(410	)		(410	)
Total other income and (expense)		—			(1,967	)		(1,967	)		—			(2,185	)		(2,185	)
Income (loss) from discontinued operations		1,668			(295	)		1,373			(93,699	)		(5,462	)		(99,161	)
Income tax expense(3)		(615	)		—			(615	)		—			—			—
Income (loss) from results of operations of discontinued operations, net of tax		1,053			(295	)		758			(93,699	)		(5,462	)		(99,161	)
Gain on sales of discontinued operations, net of tax(4)		5,645			2,917			8,562			—			—			—
Gain (loss) from results of operations and sale of discontinued operations, net of tax	$	6,698		$	2,622		$	9,320		$	(93,699	)	$	(5,462	)	$	(99,161	)

(1)	Impairment provision. In accordance with accounting standards, the impairment loss relating to certain properties held for sale at June 30, 2010 in conjunction with the 2010 Wapiti Transaction were reflected as discontinued operations.
(2)	Depreciation and Amortization — Drilling and Trucking. Depreciation and amortization expense — drilling decreased to zero for the three months ended June 30, 2011 as compared to $5.2 million for the comparable year earlier period. The decrease is due to not recording depreciation expense beginning in March 2011 in accordance with accounting rules related to the asset held for sale treatment of DHS.
(3)	Income tax expense. For the three months ended June 30, 2011, the Company recorded a tax benefit of $3.9 million due to a non-cash income tax benefit related to gains from discontinued oil and gas operations. Generally accepted accounting principles, or GAAP, require all items be considered, including items recorded in discontinued operations, in determining the amount of tax benefit that results from a loss from continuing operations that should be allocated to continuing operations. In accordance with GAAP, the Company recorded a tax benefit on our loss from continuing operations, which was exactly offset by income tax expense on discontinued operations.
(4)	Gain on sales of discontinued operations — oil and gas. On June 28, 2011, the Company closed on a transaction with Wapiti Oil & Gas to sell its remaining interests in various non-core assets primarily located in Texas and Wyoming (the “2011 Wapiti Transaction”) for gross cash proceeds of approximately $43.2 million. In accordance with accounting standards, the Company recognized a $5.6 million gain on sale ($8.9 million gain, net of $3.3 million of tax) for the three months ended June 30, 2011 that is reflected in discontinued operations. Gain on sales of discontinued operations — drilling. In June 2011, DHS sold substantially all of its Chapman Trucking assets for $3.3 million in proceeds and a gain of $2.9 million. Proceeds were used to reduce DHS bank debt.

The following table shows the oil and gas segment and drilling segment revenues and expenses included in discontinued operations for the above mentioned oil and gas properties for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended									Six Months Ended
	June 30, 2011									June 30, 2010
	Oil & Gas			Drilling			Total			Oil & Gas			Drilling			Total
Revenues:
Oil and gas sales	$	9,935		$	—		$	9,935		$	28,295		$	—		$	28,295
Contract drilling and trucking fees		—			26,393			26,393			—			20,996			20,996
Total Revenues		9,935			26,393			36,328			28,295			20,996			49,291
Operating Expenses:
Lease operating expense		2,517			—			2,517			6,654			—			6,654
Transportation expense		22			—			22			1,443			—			1,443
Production taxes		404			—			404			1,568			—			1,568
Depreciation, depletion, amortization and accretion — oil and gas		2,795			—			2,795			21,046			—			21,046
Impairment provision(1)		—			—			—			93,064			—			93,064
Drilling and trucking operating expenses		—			22,507			22,507			—			16,012			16,012
Depreciation and amortization — drilling and trucking(2)		—			2,669			2,669			—			10,798			10,798
General and administrative expense		—			2,084			2,084			—			2,129			2,129
Total operating expenses		5,738			27,260			32,998			123,775			28,939			152,714
Operating income (loss)		4,197			(867	)		3,330			(95,480	)		(7,943	)		(103,423	)
Other income and (expense):
Interest expense and financing costs, net		—			(4,129	)		(4,129	)		—			(3,632	)		(3,632	)
Other income (expense)		—			(428	)		(428	)		—			(349	)		(349	)
Total other income and (expense)		—			(4,557	)		(4,557	)		—			(3,981	)		(3,981	)
Income (loss) from discontinued operations		4,197			(5,424	)		(1,227	)		(95,480	)		(11,924	)		(107,404	)
Income tax expense(3)		(1,550	)		—			(1,550	)		—			—			—
Income (loss) from results of operations of discontinued operations, net of tax		2,647			(5,424	)		(2,777	)		(95,480	)		(11,924	)		(107,404	)
Gain on sales of discontinued operations(4)		5,645			2,917			8,562			—			—			—
Gain (loss) from results of operations and sale of discontinued operations, net of tax	$	8,292		$	(2,507	)	$	5,785		$	(95,480	)	$	(11,924	)	$	(107,404	)

(1)	Impairment provision. In accordance with accounting standards, the impairment loss relating to certain properties held for sale at June 30, 2010 in conjunction with the 2010 Wapiti Transaction were reflected as discontinued operations.
(2)	Depreciation and Amortization — Drilling and Trucking. Depreciation and amortization expense — drilling decreased to $2.7 million for the six months ended June 30, 2011 as compared to $10.8 million for the comparable year earlier period. The decrease is due to not recording depreciation expense beginning in March 2011 in accordance with accounting rules related to the asset held for sale treatment of DHS.
(3)	Income tax expense. For the six months ended June 30, 2011, the Company recorded a tax benefit of $4.8 million due to a non-cash income tax benefit related to gains from discontinued oil and gas operations. Generally accepted accounting principles, or GAAP, require all items be considered, including items recorded in discontinued operations, in determining the amount of tax benefit that results from a loss from continuing operations that should be allocated to continuing operations. In accordance with GAAP, the Company recorded a tax benefit on our loss from continuing operations, which was exactly offset by income tax expense on discontinued operations. Our net deferred tax position at June 30, 2011 is not impacted by this tax allocation.
(4)	Gain on sales of discontinued operations — oil and gas. On June 28, 2011, the Company closed on a transaction with Wapiti Oil & Gas to sell its remaining interests in various non-core assets primarily located in Texas and Wyoming (the “2011 Wapiti Transaction”) for gross cash proceeds of approximately $43.2 million. In accordance with accounting standards, the Company recognized a $5.6 million gain on sale ($8.9 million gain, net of $3.3 million of tax) for the six months ended June 30, 2011 that is reflected in discontinued operations. Gain on sales of discontinued operations — drilling. In June 2011, DHS sold substantially all of its Chapman Trucking assets for $3.3 million in proceeds and a gain of $2.9 million. Proceeds were used to reduce DHS bank debt.