Discontinued Operations

9 Months Ended

Sep. 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 second quarter of 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. See Note 15, Subsequent Events regarding the sale of DHS which occurred subsequent to quarter end.

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

	Three Months Ended									Three Months Ended
	September 30, 2011									September 30, 2010
	Oil & Gas			Drilling			Total			Oil & Gas		Drilling			Total
Revenues:
Oil and gas sales	$	197		$	—		$	197		$	8,924	$	—		$	8,924
Contract drilling and trucking fees		—			14,757			14,757			—		15,204			15,204
Total Revenues		197			14,757			14,954			8,924		15,204			24,128
Operating Expenses:
Lease operating expense		(212	)		—			(212	)		1,843		—			1,843
Transportation expense		(28	)		—			(28	)		270		—			270
Production taxes		(35	)		—			(35	)		446		—			446
Depreciation, depletion, amortization and accretion – oil and gas		—			—			—			2,921		—			2,921
Impairment provision(1)		—			—			—			902		—			902
Drilling and trucking operating expenses		—			11,086			11,086			—		12,041			12,041
Depreciation and amortization – drilling and trucking(2)		—			—			—			—		4,801			4,801
General and administrative expense		—			722			722			—		2,473			2,473
Total operating expenses		(275	)		11,808			11,533			6,382		19,315			25,697
Operating income (loss)		472			2,949			3,421			2,542		(4,111	)		(1,569	)
Other income and (expense):
Interest expense and financing costs, net		—			(2,075	)		(2,075	)		—		(1,743	)		(1,743	)
Other income (expense)		—			137			137			—		(544	)		(544	)
Total other income and (expense)		—			(1,938	)		(1,938	)		—		(2,287	)		(2,287	)
Income (loss) from discontinued operations		472			1,011			1,483			2,542		(6,398	)		(3,856	)
Income tax expense(3)		(174	)		—			(174	)		—		—			—
Income (loss) from results of operations of discontinued operations, net of tax		298			1,011			1,309			2,542		(6,398	)		(3,856	)
Gain on sales of discontinued operations, net of tax(4)		—			—			—			28,910		—			28,910
Gain (loss) from results of operations and sale of discontinued operations, net of tax	$	298		$	1,011		$	1,309		$	31,452	$	(6,398	)	$	25,054

(1)	Impairment provision. In accordance with accounting standards, the impairment loss relating to certain properties held for sale at September 30, 2010 in conjunction with the 2010 and 2011 Wapiti Transactions 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 September 30, 2011 as compared to $4.8 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 three months ended September 30, 2011, the Company recorded a tax benefit of $174,000 due to a non-cash income tax benefit related to income 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 its 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 July 30, 2010, the Company closed on a transaction with Wapiti Oil & Gas to sell all or a portion of the Company’s interests in various non-core assets primarily located in Texas and Wyoming for gross cash proceeds of approximately $130.0 million. In accordance with accounting standards, the Company recognized a $29.6 million gain on sale for the three months ended September 30, 2010 that is reflected in discontinued operations. On August 27, 2010, the Company closed on the Howard Ranch sale for cash proceeds of $550,000, recognizing a loss on sale of $687,000 in accordance with accounting standards.

The following table shows the oil and gas segment and drilling segment revenues and expenses included in discontinued operations as described above for the nine months ended September 30, 2011 and 2010 (in thousands):

	Nine Months Ended									Nine Months Ended
	September 30, 2011									September 30, 2010
	Oil & Gas			Drilling			Total			Oil & Gas			Drilling			Total
Revenues:
Oil and gas sales	$	10,131		$	—		$	10,131		$	37,219		$	—		$	37,219
Contract drilling and trucking fees		—			41,150			41,150			—			36,200			36,200
Total Revenues		10,131			41,150			51,281			37,219			36,200			73,419
Operating Expenses:
Lease operating expense		2,305			—			2,305			8,497			—			8,497
Transportation expense		(6	)		—			(6	)		1,714			—			1,714
Production taxes		367			—			367			2,013			—			2,013
Depreciation, depletion, amortization and accretion – oil and gas		2,795			—			2,795			23,966			—			23,966
Impairment provision(1)		—			—			—			93,260			—			93,260
Drilling and trucking operating expenses		—			33,593			33,593			—			28,053			28,053
Depreciation and amortization – drilling and trucking(2)		—			2,669			2,669			—			15,599			15,599
General and administrative expense		—			2,806			2,806			—			4,602			4,602
Total operating expenses		5,461			39,068			44,529			129,450			48,254			177,704
Operating income (loss)		4,670			2,082			6,752			(92,231	)		(12,054	)		(104,285	)
Other income and (expense):
Interest expense and financing costs, net		—			(6,204	)		(6,204	)		—			(5,376	)		(5,376	)
Other income (expense)		—			2,625			2,625			—			(893	)		(893	)
Total other income and (expense)		—			(3,579	)		(3,579	)		—			(6,269	)		(6,269	)
Income (loss) from discontinued operations		4,670			(1,497	)		3,173			(92,231	)		(18,323	)		(110,554	)
Income tax expense(3)		(1,724	)		—			(1,724	)		—			—			—
Income (loss) from results of operations of discontinued operations, net of tax		2,946			(1,497	)		1,449			(92,231	)		(18,323	)		(110,554	)
Gain on sales of discontinued operations(4)		5,643			—			5,643			28,910			—			28,910
Gain (loss) from results of operations and sale of discontinued operations, net of tax	$	8,589		$	(1,497	)	$	7,092		$	(63,321	)	$	(18,323	)	$	(81,644	)

(1)	Impairment provision. In accordance with accounting standards, the impairment loss relating to certain properties held for sale at September 30, 2010 in conjunction with the 2010 and 2011 Wapiti Transactions were reflected as discontinued operations.
(2)	Depreciation and Amortization – Drilling and Trucking. Depreciation and amortization expense – drilling decreased to $2.7 million for the nine months ended September 30, 2011 as compared to $15.6 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 nine months ended September 30, 2011, the Company recorded a tax expense of $1.7 million due to a non-cash income tax benefit related to income 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 its loss from continuing operations, which was exactly offset by income tax expense on discontinued operations. The Company’s net deferred tax position at September 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 nine months ended September 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.