Acquisitions and Divestitures

Permian Basin Acquisition. On December 11, 2017, the Company and Oasis Petroleum Permian LLC (“OP Permian”), a wholly owned subsidiary of the Company, entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Forge Energy, LLC (“Forge Energy”). Pursuant to the Purchase Agreement, the Company, through its ownership of OP Permian, acquired from Forge Energy approximately 22,000 net acres in the Delaware Basin (the “Permian Basin Acquisition”) for aggregate consideration consisting of approximately $549.8 million in cash, inclusive of a $47.3 million deposit paid to Forge Energy in December 2017, and 46,000,000 shares of the Company’s common stock (the “Purchase Price”), including customary close adjustments. The effective date for the Permian Basin Acquisition is December 1, 2017 and the transaction closed on February 14, 2018. In connection with the closing of the Permian Basin Acquisition, the Company and Forge Energy entered into a Registration Rights Agreement that will grant the equity holders of Forge Energy certain customary registration rights for the stock portion of the Purchase Price. The Company funded the cash portion of the Purchase Price with borrowings under the Oasis Credit Facility and other capital market transactions. The Company’s determination of the Permian Basin Acquisition’s fair value of the assets acquired and liabilities assumed is expected to be finalized during the first quarter of 2018.

The Permian Basin Acquisition represents the Company’s initial entry into the Delaware Basin. The assets underlying the Permian Basin Acquisition are primarily located in the Bone Spring and Wolfcamp formations of the Delaware sub-basin, across Ward, Winkler, Loving and Reeves Counties, Texas.

Midstream Assets Acquisition. On April 25, 2017, the Company completed purchase and sale agreements with two undisclosed private sellers to acquire certain midstream assets in McKenzie County, North Dakota (the “Midstream Assets Acquisition”) for total consideration of $12.7 million, which includes $4.9 million of installment notes payable. Based on the FASB’s authoritative guidance, the acquisition qualified as a business combination, and as such, the Company estimated the fair value of the assets acquired as of the acquisition date. The Company recorded the assets acquired at their estimated fair value of $12.7 million, which the Company considers to be representative of the price paid by a typical market participant. This measurement resulted in no goodwill or bargain purchase being recognized.

The results of operations for the acquisition have been included in the Company’s consolidated financial statements since the closing date. Pro forma information is not presented as the pro forma results would not be materially different from the information presented in the Company’s Consolidated Statement of Operations.

Williston Basin Acquisition. On December 1, 2016, the Company completed a purchase and sale agreement with SM Energy Company (“SM Energy”), pursuant to which the Company agreed to purchase approximately 55,000 net acres in the Williston Basin for aggregate consideration of $764.3 million in cash, subject to further customary post-closing purchase price adjustments (the “Williston Basin Acquisition”). The Company funded the Williston Basin Acquisition with proceeds from the Company’s October 2016 issuance of its common shares and borrowings under the Oasis Credit Facility.

The Williston Basin Acquisition qualified as a business combination, and as such, the Company estimated the fair value of the assets acquired and liabilities assumed as of the December 1, 2016 acquisition date. The fair value is 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 (exit price). Fair value measurements also utilize assumptions of market participants. The Company used a discounted cash flow model and made market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates and risk adjusted discount rates. These assumptions represent Level 3 inputs, as further discussed under Note 6 — Fair Value Measurements. The Company recorded the assets acquired and liabilities assumed in the Williston Basin Acquisition at their estimated fair value of $764.3 million, which the Company considers to be representative of the price paid by a typical market participant. This measurement resulted in no goodwill or bargain purchase being recognized. The Williston Basin Acquisition is considered a taxable transaction; therefore, no deferred tax amounts were recognized at the acquisition date as the tax basis of the assets acquired and liabilities assumed were also recorded at fair value.

The following table summarizes the consideration paid, including customary close adjustments, for the Company’s acquisition and the fair value of the assets acquired and liabilities assumed as of the acquisition date.



	At December 1, 2016
	(In thousands)
Consideration given to SM Energy:
Cash	$	764,300
Recognized amounts of identifiable assets acquired and liabilities assumed:
Proved developed properties	$	419,911
Proved undeveloped properties	154,146
Unproved lease acquisition costs	200,244
Other property and equipment	204
Inventory	1,297
Asset retirement obligations	(8,931		)
Revenues payable	(2,571		)
	$	764,300

The results of operations for the Williston Basin Acquisition have been included in the Company’s consolidated financial statements since the December 1, 2016 closing date, including $14.6 million of total revenue and $5.9 million of operating income for the year ended December 31, 2016. In addition, the Company included $0.3 million of costs related to the Williston Basin Acquisition in general and administrative expenses on its Consolidated Statements of Operations for the year ended December 31, 2016.

Summarized below are the consolidated results of operations for the year ended December 31, 2016, on an unaudited pro forma basis, as if the acquisition and related financing had occurred on January 1, 2015. The unaudited pro forma financial information was derived from the historical Consolidated Statements of Operations of the Company and the statement of revenues and direct operating expenses for the Williston Basin Acquisition properties, which were derived from the historical accounting records of the SM Energy. The unaudited pro forma financial information does not purport to be indicative of results of operations that would have occurred had the acquisition and related financing occurred on the basis assumed above, nor is such information indicative of the Company’s expected future results of operations.



	Year Ended December 31,
	2016			2015
	(In thousands)
	Unaudited
Revenues	$	847,341		$	991,722
Net income	(208,629		)	265

Acquisitions. The Company actively reviews acquisition opportunities on an ongoing basis and acquires additional acreage and producing assets to supplement its existing operations. In addition to the Permian Basin Acquisition and the Midstream Assets Acquisition in 2017 and the Williston Basin Acquisition in 2016, the Company spent $6.1 million, $15.8 million and $28.8 million to purchase certain acreage and producing assets through multiple transactions during the years ended December 31, 2017, 2016 and 2015, respectively.

2016 Divestiture. On April 1, 2016, the Company completed the sale of certain legacy wells that have been producing from conventional reservoirs such as the Madison, Red River and other formations in the Williston Basin other than the Bakken or Three Forks formations for cash proceeds of $12.8 million, which includes customary post close adjustments, and a $4.0 million 10% secured promissory note that was received during the year ended in December 31, 2017 (the “2016 Divestiture”). The 2016 Divestiture primarily consisted of oil and gas properties in the Company’s exploration and production segment and included certain other property and equipment in the Company’s midstream segment.

For the years ended December 31, 2016 and 2015, the Company recorded impairment charges of $3.6 million and $9.4 million, respectively, which were included in impairment on the Company’s Consolidated Statements of Operations, to adjust the carrying amount of these assets to their estimated fair value, determined based on the expected sales price, less costs to sell.