Impairments

12 Months Ended

Dec. 31, 2022


19.			Impairments

Impairments of Natural Gas and Oil Properties

During the 2020 Predecessor Period we recognized $8.446 billion of impairments related to our natural gas and oil properties. In the 2020 Predecessor Period, the decrease in demand for crude oil primarily due to the combined impacts of COVID-19 and the OPEC+ production increases resulted in decreases in then current and then expected long-term crude oil and NGL sale prices. These conditions resulted in reductions to the market capitalization of peer companies in the energy industry. We determined these adverse market conditions represented a triggering event to perform an impairment assessment of our long-lived assets used in, and in support of, our operations, including proved natural gas and oil properties, and our sand mine assets.

Proved Gas and Oil Properties

Our impairment test involved a Step 1 assessment to determine if the net book value of our proved natural gas and oil properties was expected to be recovered from the estimated undiscounted future cash flows.

•We calculated the expected undiscounted future net cash flows of our long-lived assets using management’s assumptions and expectations of (i) commodity prices, which are based on the NYMEX strip pricing escalated by an inflationary rate (ii) pricing adjustments for differentials, (iii) operating costs, (iv) capital investment plans, (v) future production volumes, and (vi) estimated proved reserves.

•Unprecedented volatility in the price of oil due to the decrease in demand led us to rely on NYMEX strip pricing, which represented a Level 1 input.

Certain natural gas and oil properties in our Eagle Ford, Powder River Basin, and Mid-Continent and other non-core operating areas failed the Step 1 assessment. For these assets, we used a discounted cash flow analysis to estimate fair value. The expected future net cash flows were discounted using a rate of 11%, which we believe represents the estimated weighted average cost of capital of a theoretical market participant. Based on Step 2 of our long-lived assets impairment test, we recognized an $8.446 billion impairment because the carrying value exceeded estimated fair market value as of March 31, 2020.

•Significant inputs associated with the calculation of discounted future net cash flows include estimates of (i) recoverable reserves, (ii) production rates, (iii) future operating and development costs, (iv) future commodity prices escalated by an inflationary rate, adjusted for differentials, and (v) a market-based weighted average cost of capital. We utilized NYMEX strip pricing, adjusted for differentials, to value the reserves. The NYMEX strip pricing inputs used are classified as Level 1 fair value assumptions and all other inputs are classified as Level 3 fair value assumptions.

Impairments of Fixed Assets

In the 2020 Predecessor Period, we recorded a $76 million impairment of our sand mine assets that support our Eagle Ford operating area for the difference between the fair value and carrying value of the assets as well as a $13 million impairment of compressor inventory due to a lack of a current market for compressors.

During the 2022 Successor Period, 2021 Successor Period and 2021 Predecessor Period, we did not have any material impairments of our natural gas and oil properties or fixed assets.