Oil and Natural Gas Property Transactions

Under full cost accounting rules, we accounted for the sales of oil and natural gas properties discussed below as adjustments to capitalized costs, with no recognition of gain or loss as the sales did not involve a significant change in proved reserves or significantly alter the relationship between costs and proved reserves.

In the Current Period, we sold portions of our acreage and producing properties in our Haynesville Shale operating area in northern Louisiana for approximately $915 million, subject to certain customary closing adjustments. Included in the sales were approximately 119,500 net acres and interests in 576 wells that were producing approximately 80 mmcf of gas per day at the time of closing.

Also in the Current Quarter and the Current Period, we received proceeds of $63 million and $83 million, respectively, for the sale of other oil and natural gas properties.

In the Prior Quarter and the Prior Period, we sold certain of our noncore oil and natural gas properties for net proceeds of approximately $833 million and $964 million, respectively, after post-closing adjustments. In conjunction with certain of these sales, we purchased oil and natural gas interests previously sold to third parties in connection with four of our VPP transactions for approximately $259 million. A majority of the acquired interests were part of the asset divestitures discussed above and we no longer have any further commitments or obligations related to these VPPs. The asset divestitures cover various operating areas.

Volumetric Production Payments

From time to time, we have sold certain of our producing assets located in more mature producing regions through the sale of VPPs. A VPP is a limited-term overriding royalty interest in oil and natural gas reserves that (i) entitles the purchaser to receive scheduled production volumes over a period of time from specific lease interests; (ii) is free and clear of all associated future production costs and capital expenditures; (iii) is non-recourse to the seller (i.e., the purchaser’s only recourse is to the reserves acquired); (iv) transfers title of the reserves to the purchaser; and (v) allows the seller to retain all production beyond the specified volumes, if any, after the scheduled production volumes have been delivered. For all of our VPP transactions, we novated to each of the respective VPP buyers hedges that covered all VPP volumes sold. If contractually scheduled volumes exceed the actual volumes produced from the VPP wellbores that are attributable to the ORRI conveyed, either the shortfall will be made up from future production from these wellbores (or, at our option, from our retained interest in the wellbores) through an adjustment mechanism, or the initial term of the VPP will be extended until all scheduled volumes, to the extent produced, are delivered from the VPP wellbores to the VPP buyer. We retain drilling rights on the properties below currently producing intervals and outside of producing wellbores.

As the operator of the properties from which the VPP volumes have been sold, we bear the cost of producing the reserves attributable to these interests, which we include as a component of production expenses and production taxes in our condensed consolidated statements of operations in the periods these costs are incurred. As with all non-expense-bearing royalty interests, volumes conveyed in a VPP transaction are excluded from our estimated proved reserves; however, the estimated production expenses and taxes associated with VPP volumes expected to be delivered in future periods are included as a reduction of the future net cash flows attributable to our proved reserves for purposes of determining our full cost ceiling test for impairment purposes and in determining our standardized measure. Pursuant to SEC guidelines, the estimates used for purposes of determining the cost center ceiling and the standardized measure are based on current costs. Our commitment to bear the costs on any future production of VPP volumes is not reflected as a liability on our balance sheet. Future costs will depend on the actual production volumes as well as the production costs and taxes in effect during the periods in which the production actually occurs, which could differ materially from our current and historical costs, and production may not occur at the times or in the quantities projected, or at all.

For accounting purposes, cash proceeds from the sale of VPPs were reflected as a reduction of oil and natural gas properties with no gain or loss recognized, and our proved reserves were reduced accordingly. We have also committed to purchase natural gas and liquids associated with our VPP transactions. Production purchased under these arrangements is based on market prices at the time of production, and the purchased natural gas and liquids are resold at market prices.

As of June 30, 2017, we had the following VPP outstanding:

Volume Sold

VPP #

Date of VPP

Location

Proceeds

Oil

Natural Gas

NGL

Total

($ in millions)

(mmbbl)

(bcf)

(mmbbl)

(bcfe)

May 2011

Mid-Continent

853

1.7

138

4.8

177

The volumes produced on behalf of our VPP buyers during the Current Quarter, the Prior Quarter, the Current Period and the Prior Period were as follows:



Three Months Ended June 30, 2017					Three Months Ended June 30, 2016
VPP #	Oil	Natural Gas	NGL	Total	Oil	Natural Gas	NGL	Total
	(mbbl)	(bcf)	(mbbl)	(bcfe)	(mbbl)	(bcf)	(mbbl)	(bcfe)
10^(a)	—	—	—	—	42.0	1.2	146.0	2.3
9	35.2	3.0	81.3	3.7	38.5	3.3	87.6	4.1
4^(a)	—	—	—	—	9.9	1.9	—	2.0
3^(a)	—	—	—	—	—	1.0	—	1.0
2^(a)	—	—	—	—	—	0.6	—	0.6
1^(a)	—	—	—	—	—	3.1	—	3.1
	35.2	3.0	81.3	3.7	90.4	11.1	233.6	13.1

Six Months Ended June 30, 2017					Six Months Ended June 30, 2016
VPP #	Oil	Natural Gas	NGL	Total	Oil	Natural Gas	NGL	Total
	(mbbl)	(bcf)	(mbbl)	(bcfe)	(mbbl)	(bcf)	(mbbl)	(bcfe)
10^(a)	—	—	—	—	108.0	3.0	368.7	5.8
9	71.1	6.1	164.1	7.5	77.9	6.7	176.9	8.2
4^(a)	—	—	—	—	20.0	3.8	—	3.9
3^(a)	—	—	—	—	—	2.5	—	2.5
2^(a)	—	—	—	—	—	1.5	—	1.5
1^(a)	—	—	—	—	—	6.4	—	6.4
	71.1	6.1	164.1	7.5	205.9	23.9	545.6	28.3

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(a)	In connection with certain asset divestitures in 2016, we purchased the remaining oil and natural gas interests previously sold in connection with VPP #10, VPP #4, VPP #3, VPP #2 and VPP #1. A majority of the oil and natural gas interests purchased were subsequently sold to the buyers of the assets.

The volumes remaining to be delivered on behalf of our VPP buyers as of June 30, 2017 were as follows:

Volume Remaining as of June 30, 2017

VPP #

Term Remaining

Oil

Natural Gas

NGL

Total

(in months)

(mmbbl)

(bcf)

(mmbbl)

(bcfe)

0.4

39.7

1.1

48.7