Note 3 – Divestitures and Assets Held for Sale

During 2012, the Company divested of various non-strategic properties located in its Rocky Mountain and Mid-Continent regions for a total of $57.4 million in total divestiture proceeds, before marketing costs, Net Profits Plan payments, and legal fees (referred throughout this report as “divestiture proceeds”). The estimated net gain on these divestitures is $6.9 million. The final sales prices related to these divestitures are subject to normal post-closing adjustments and are expected to be finalized during the first half of 2013. See discussion below regarding the loss on unsuccessful sale of properties, which is included in gain (loss) on divestiture activity in the accompanying statements of operations.

2011 Divestiture Activity

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Eagle Ford Shale Divestiture. In August 2011, the Company divested of certain operated Eagle Ford shale assets located in its South Texas & Gulf Coast region. This divestiture was comprised of the Company’s entire operated acreage in LaSalle County, Texas, as well as an immaterial adjacent block of its operated acreage in Dimmit County, Texas. Total divestiture proceeds were $230.7 million. The final gain on this divestiture was $193.8 million. Please refer to Note 12 - Acquisition and Development Agreement and Carry and Earning Agreement for information on additional Eagle Ford activity in 2011.


•	Mid-Continent Divestiture. In June 2011, the Company divested of certain non-strategic assets located in its Mid-Continent region. Total divestiture proceeds were $35.8 million. The final gain on this divestiture was $28.5 million.


•	Rocky Mountain Divestiture. In January 2011, the Company divested of certain non-strategic assets located in its Rocky Mountain region. Total divestiture proceeds were $45.5 million. The final gain on this divestiture was $27.2 million.

2010 Divestiture Activity


•	Permian Divestiture. In December 2010, the Company completed the divestiture of certain non-strategic assets located in its Permian region. Total divestiture proceeds were $54.7 million. The final gain on this divestiture was $18.4 million.

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Sequel Divestiture. In March 2010, the Company completed the divestiture of certain non-strategic assets located in its Rocky Mountain region. Total divestiture proceeds were $129.1 million. The final gain on this divestiture was $53.1 million. A portion of the transaction was structured to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).


•	Legacy Divestiture. In February 2010, the Company completed the divestiture of certain non-strategic assets located in its Rocky Mountain region. Total divestiture proceeds were $125.3 million. The final gain on this divestiture was $66.7 million. A portion of the transaction was structured to qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code.

Assets Held for Sale

Assets are classified as held for sale when the Company commits to a plan to sell the assets and there is reasonable certainty the sale will take place within one year. Upon classification as held for sale, long-lived assets are no longer depreciated or depleted, and a measurement for impairment is performed to identify and expense any excess of carrying value over fair value less costs to sell. Subsequent changes to the estimated fair value less the cost to sell will impact the measurement of assets held for sale for which fair value less costs to sell is determined to be less than the carrying value of the assets.

As of December 31, 2012, the accompanying balance sheets present $33.6 million of assets held for sale, net of accumulated depletion, depreciation, and amortization expense. A corresponding asset retirement obligation liability of $1.4 million is separately presented. The assets held for sale include the Company’s Marcellus shale assets located in Pennsylvania and certain assets located in the Company’s Rocky Mountain region, all of which are recorded at the lesser of their carrying values or their respective fair value less estimated costs to sell. Write-downs to fair value less estimated costs to sell are reflected in the gain (loss) on divestiture activity line item in the accompanying statements of operations.

During 2012, the Company reclassified a portion of the assets previously held for sale to assets held and used, as the assets were no longer being actively marketed. The assets were measured at the lower of the carrying value of the assets before being classified as held for sale, adjusted for any DD&A that would have been recognized had the assets been continuously held and used, or the fair value of the assets at the date they no longer met the criteria as held for sale. As a result of this measurement, the Company recognized $1.7 million of DD&A expense and a $33.9 million loss on unsuccessful sale of properties, which is included in gain (loss) on divestiture activity in the accompanying statements of operations.

Subsequent to December 31, 2012, the Company divested of a portion of its properties located in its Rocky Mountain region that were classified as held for sale at year end. Total divestiture proceeds were $9.2 million. The estimated gain on this divestiture is $2.5 million and is expected to be finalized during the first half of 2013.

The Company determined that neither these planned nor executed asset sales qualify for discontinued operations accounting under financial statement presentation authoritative guidance.