Note 3 – Divestitures, Assets Held for Sale, and Acquisitions

Divestitures

On March 10, 2017, the Company divested its outside-operated Eagle Ford shale assets, including ownership interest in related midstream assets, for total cash received at closing, net of commissions (referred to throughout this report as “net divestiture proceeds”), of $747.4 million, subject to post-closing adjustments, and recorded a net estimated gain of $398.1 million for the three months ended March 31, 2017. These assets were classified as held for sale as of December 31, 2016.

The following table presents income (loss) before income taxes of the outside-operated Eagle Ford shale assets sold for the three months ended March 31, 2017, and 2016. This divestiture is considered a disposal of a significant asset group.



	For the Three Months Ended March 31,
	2017		2016
	(in thousands)
Income (loss) before income taxes ⁽¹⁾	$	24,324	$	(286,399	)

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⁽¹⁾	Income (loss) before income taxes reflects oil, gas, and NGL production revenue, less oil, gas, and NGL production expense and depletion, depreciation, amortization, and asset retirement obligation liability accretion. Additionally, income (loss) before income taxes included impairment of proved properties expense of approximately $269.6 million for the three months ended March 31, 2016.

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 estimated costs to sell. Any subsequent changes to the fair value less estimated costs to sell impact the measurement of assets held for sale, with any gain or loss reflected in the net gain (loss) on divestiture activity line item in the accompanying condensed consolidated statements of operations (“accompanying statements of operations”).

As of March 31, 2017, the accompanying condensed consolidated balance sheets (“accompanying balance sheets”) present $455.9 million of assets held for sale, net of accumulated depletion, depreciation, and amortization expense, which consisted primarily of the Company’s remaining Williston Basin assets in Divide County, North Dakota (referred to as “Divide County” throughout this report). A corresponding asset retirement obligation liability of $16.1 million was separately presented. The Company expects to close the divestiture of these assets during the second quarter of 2017. These assets were written down by $359.6 million to reflect fair value less estimated costs to sell upon classification as held for sale during the three months ended March 31, 2017.

The following table presents loss before income taxes of the Company’s Divide County assets held for sale for the three months ended March 31, 2017, and 2016:



	For the Three Months Ended March 31,
	2017			2016
	(in thousands)
Loss before income taxes ⁽¹⁾	$	(335,561	)	$	(16,813	)

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⁽¹⁾

Loss before income taxes reflects oil, gas, and NGL production revenue less oil, gas, and NGL production expense and depletion, depreciation, amortization, and asset retirement obligation liability accretion. Additionally, loss before income taxes for the three months ended March 31, 2017, included the $359.6 million write-down on these assets held for sale as discussed above, and loss before income taxes for the three months ended March 31, 2016, included $1.6 million of unproved property impairments.

Acquisitions

During the first quarter of 2017, the Company acquired approximately 2,900 net acres of proved and unproved properties in the Midland Basin for $59.6 million, subject to post-closing adjustments. Under authoritative accounting guidance, this transaction was considered an asset acquisition, and therefore, the properties were recorded based on the fair value of the total consideration transferred on the acquisition date and transaction costs were capitalized as a component of the cost of the assets acquired.

The Company finalized the 2016 acquisition of Midland Basin properties from Rock Oil Holdings, LLC (referred to as the “Rock Oil Acquisition”) during the first quarter of 2017 by paying an additional $7.4 million of cash consideration, resulting in total consideration of $998.4 million paid after final closing adjustments. There were no material changes to the recorded basis of the proved and unproved properties acquired as a result of the final settlement.

Also, during the first quarter of 2017, and subsequent to March 31, 2017, the Company completed trades of properties, primarily unproved, in Howard and Martin Counties, Texas resulting in the Company acquiring approximately 3,020 net acres in exchange for 2,310 net acres. There was no cash consideration for the trade that was completed during the three months ended March 31, 2017, and this trade was recorded at the fair value of the assets surrendered with no gain or loss recognized.