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 its ownership interest in related midstream assets, for total cash received at closing, net of costs (referred to throughout this report as “net divestiture proceeds”), of $747.4 million. The Company finalized this divestiture subsequent to September 30, 2017, and recorded a final net gain of $396.8 million for the nine months ended September 30, 2017. These assets were classified as held for sale as of December 31, 2016.

The following table presents income (loss) before income taxes from the outside-operated Eagle Ford shale assets sold for the three and nine months ended September 30, 2017, and 2016. This divestiture is considered a disposal of a significant asset group.



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)
Income (loss) before income taxes ⁽¹⁾	$	—	$	22,116	$	24,324	$	(251,451	)

____________________________________________


⁽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 nine months ended September 30, 2016.

During the first nine months of 2017, the Company divested certain non-core properties in its Rocky Mountain and Permian regions for net divestiture proceeds of $31.0 million.

During the third quarter of 2016, the Company divested certain non-core properties in its Rocky Mountain and Permian regions for net divestiture proceeds of $165.2 million. As of September 30, 2016, $23.6 million of accrued costs and payments to Net Profits Plan participants related to divestitures were included in accounts payable and accrued expenses in the Company’s condensed consolidated balance sheets. The Company recorded a $22.4 million net gain on divestiture activity for the three months ended September 30, 2016, which was a result of closing divestitures in the Company’s Rocky Mountain and Permian regions during the third quarter of 2016. Certain of these sold assets were written down in the first quarter of 2016 and subsequently written up in the second quarter of 2016 based on changes in the estimated fair value less selling costs, resulting in a net gain of $6.3 million recorded for the nine months ended September 30, 2016.

Assets Held for Sale

Assets are classified as held for sale when the Company commits to a plan to sell the assets and it is probable 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. When assets no longer meet the criteria of assets held for sale, they are measured at the lower of the carrying value of the assets before being classified as held for sale, adjusted for any depletion, depreciation, and amortization expense that would have been recognized, or the fair value at the date they are reclassified to assets held for use. Any gain or loss recognized on assets held for sale or on assets held for sale that are subsequently reclassified to assets held for use is 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 September 30, 2017, there were $7.1 million of assets held for sale presented in the accompanying condensed consolidated balance sheets (“accompanying balance sheets”).

During the nine months ended September 30, 2017, the Company recorded a $526.5 million write-down on its retained Divide County, North Dakota, assets previously held for sale, of which $359.6 million was recorded in the first quarter of 2017 based on an estimated fair value less selling costs and an additional $166.9 million write-down was recorded in the second quarter of 2017 based on market conditions that existed on the date the Company decided to retain the assets.

Acquisitions

During the first nine months of 2017, the Company acquired approximately 3,400 net acres of primarily unproved properties in Howard and Martin Counties, Texas, in multiple transactions for a total of $72.2 million of cash consideration. Under authoritative accounting guidance, these transactions were considered asset acquisitions and 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 approximately $1.0 billion paid after final closing adjustments. The Company finalized the 2016 acquisition of Midland Basin properties from QStar LLC and RRP-QStar, LLC (referred to as the “QStar Acquisition”) during the third quarter of 2017 by paying an additional $7.3 million of cash consideration, with the majority of this payment being made in the first quarter of 2017, resulting in total consideration of approximately $1.6 billion paid after final closing adjustments. The Company funded these acquisitions with proceeds from divestitures, the Senior Convertible Notes issuance, the issuance of 6.75% Senior Notes due 2026 (“2026 Notes”), and equity offerings in 2016. Please refer to Note 5 - Long-Term Debt and Note 15 - Equity in the Company’s 2016 Form 10-K for more information on the funding for these acquisitions. There were no material changes to the initial recorded basis of these proved and unproved properties acquired as a result of the final settlements.

Also, during the first nine months of 2017, the Company completed several non-monetary acreage trades of primarily unproved properties, in Howard and Martin Counties, Texas, resulting in the Company acquiring approximately 7,425 net acres in exchange for approximately 6,725 net acres with $283.7 million of value attributed to the properties assigned by the Company in such trades. These trades were recorded at carryover basis with no gain or loss recognized.