Note 2. Acquisitions and Divestitures

Fair Value

The FASC Fair Value Measurements and Disclosures topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (often referred to as the "exit price"). The fair value measurement is based on the assumptions of market participants and not those of the reporting entity. Therefore, entity-specific intentions do not impact the measurement of fair value unless those assumptions are consistent with market participant views.

The fair value of oil and natural gas properties is based on significant inputs not observable in the market, which the FASC Fair Value Measurements and Disclosures topic defines as Level 3 inputs. Key assumptions may include (1) NYMEX oil and natural gas futures (this input is observable); (2) dollar-per-acre values of recent sale transactions (this input is observable); (3) projections of the estimated quantities of oil and natural gas reserves, including those classified as proved, probable and possible; (4) estimated oil and natural gas pricing differentials; (5) projections of future rates of production; (6) timing and amount of future development and operating costs; (7) projected costs of CO₂ (to a market participant); (8) projected reserve recovery factors; and (9) risk-adjusted discount rates.

2013 Acquisition

Cedar Creek Anticline Acquisition. In January 2013, we entered into an agreement to acquire producing assets in the Cedar Creek Anticline ("CCA") of Montana and North Dakota from a wholly-owned subsidiary of ConocoPhillips Company ("ConocoPhillips") for $1.05 billion ($1.0 billion after final closing adjustments primarily for revenues and costs of the purchased properties from the January 1, 2013 effective date to the closing date). We closed the acquisition on March 27, 2013, funding the purchase price with a portion of the cash proceeds from the Bakken Exchange Transaction (described below). This acquisition meets the definition of a business under the FASC Business Combinations topic. Accordingly, we estimated the fair value of assets acquired and liabilities assumed as of the closing date of the acquisition, using a discounted future net cash flow model.

We finalized our estimate of the fair value of assets acquired and liabilities assumed during 2013, after consideration of final closing adjustments, evaluation of oil and natural gas properties, other assets and related asset retirement obligations. The following table presents a summary of the fair value of assets acquired and liabilities assumed in the CCA acquisition:



In thousands
Consideration
Cash consideration ⁽¹⁾	$	1,001,707

Fair value of assets acquired and liabilities assumed
Oil and natural gas properties
Proved properties	783,507
Unevaluated properties	222,820
Other assets	2,589
Asset retirement obligations	(7,209		)
	$	1,001,707


(1)	See Note 6, Income Taxes, for additional information regarding the like-kind-exchange transaction utilized to fund this purchase and Note 13, Supplemental Cash Flow Information, for supplemental cash flow information regarding the cash payment.

For the period from March 27, 2013 to December 31, 2013, we recognized $268.3 million of oil, natural gas, and related product sales from the property interests acquired in the CCA acquisition; during that same period, we recognized $194.2 million of net field operating income (defined as oil, natural gas and related product sales less lease operating expenses, production and ad valorem taxes, and marketing expenses) related to the CCA acquisition.

2012 Acquisitions and Divestitures

Bakken Exchange Transaction. In late 2012, we closed a sale and exchange transaction (the "Bakken Exchange Transaction") with Exxon Mobil Corporation and its wholly-owned subsidiary XTO Energy Inc. (collectively, "ExxonMobil") in which we sold to ExxonMobil our Bakken area assets in North Dakota and Montana in exchange for (1) $1.3 billion in cash (after closing adjustments), (2) ExxonMobil's operating interests in Webster Field in Texas and Hartzog Draw Field in Wyoming, and (3) approximately a one-third overriding royalty ownership interest in ExxonMobil's CO₂ reserves in LaBarge Field in Wyoming.

This acquisition meets the definition of a business under the FASC Business Combinations topic. We finalized our estimate of the fair value of assets acquired and liabilities assumed during 2013, after consideration of final closing adjustments and evaluation of reserves. The following table presents a summary of the fair value of assets acquired and liabilities assumed in the Bakken Exchange Transaction:



In thousands
Consideration
Fair value of net assets transferred	$	1,866,107

Less: Fair value of assets acquired and liabilities assumed
Cash ⁽¹⁾	1,277,041
Oil and natural gas properties
Proved properties	182,289
Unevaluated properties	90,690
CO₂ properties	314,505
Other property and equipment	23,424
Other assets	477
Other liabilities	(8,528		)
Asset retirement obligations	(13,791		)
Fair value of net assets acquired	$	1,866,107


(1)	See Note 13, Supplemental Cash Flow Information, for additional information regarding the placement of $1.05 billion of the proceeds in a qualified trust in order to enable a like-kind exchange transaction for federal income tax purposes.

Thompson Field Acquisition. In June 2012, we acquired a nearly 100% working interest and 84.7% net revenue interest in Thompson Field for $366.2 million after closing adjustments. The field is located in close proximity to Hastings Field (an enhanced oil recovery field that we are currently flooding with CO₂), which is the current terminus of the Green Pipeline, which transports CO₂ both from the Jackson Dome area near Jackson, Mississippi, and from various anthropogenic sources along the route of the pipeline. Thompson Field is similar to Hastings Field, producing oil from the Frio zone at similar depths, and is also a planned future tertiary field. Under the terms of the Thompson Field acquisition agreement, the seller will retain approximately a 5% gross revenue interest (less severance taxes) once average monthly oil production exceeds 3,000 Bbls/d after the initiation of CO₂ injection.

This acquisition meets the definition of a business under the FASC Business Combinations topic. The fair values assigned to assets acquired and liabilities assumed in this acquisition have been finalized, and no adjustments have been made to fair value amounts previously disclosed in our Form 10-K for the period ended December 31, 2012. The following table presents a summary of the fair value of assets acquired and liabilities assumed in the Thompson Field acquisition:



In thousands
Consideration
Cash consideration ⁽¹⁾	$	366,179

Less: Fair value of assets acquired and liabilities assumed
Oil and natural gas properties
Proved properties	305,233
Unevaluated properties	12,023
Pipelines and plants	2,000
Other assets	2,957
Asset retirement obligations	(3,306		)
	318,907
Goodwill	$	47,272


(1)	See Note 6, Income Taxes, for additional information regarding the like-kind-exchange transaction utilized to fund this purchase and Note 13, Supplemental Cash Flow Information, for supplemental cash flow information regarding the cash payment.

Unaudited Pro Forma Acquisition Information. The following combined pro forma total revenues and other income and net income are presented as if the previously discussed CCA acquisition, Bakken Exchange Transaction and Thompson Field acquisition had occurred on January 1, 2012:



	Year Ended December 31,
In thousands, except per-share data	2013		2012
Pro forma total revenues and other income	$	2,599,301	$	2,570,829
Pro forma net income	437,616		582,033
Pro forma net income per common share
Basic	$	1.19	$	1.51
Diluted	1.18		1.50

Other 2012 Divestitures. In April 2012, we completed the sale of certain non-operated assets in the Paradox Basin of Utah for $68.5 million, after final closing adjustments. The sale had an effective date of January 1, 2012. In February 2012, we completed the sale of certain non-core assets primarily located in central and southern Mississippi and in southern Louisiana for net proceeds of $141.8 million, after final closing adjustments. The sale had an effective date of December 1, 2011. We did not record a gain or loss on these divestitures in accordance with the full cost method of accounting. Certain of our 2012 divestitures were structured as like-kind-exchange transactions for federal income tax purposes. See Note 6, Income Taxes, for further details.