XML 33 R16.htm IDEA: XBRL DOCUMENT v3.4.0.3
Discontinued operations
 3 Months Ended
Mar. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued operations
Discontinued operations
In the second quarter of 2015, the Company began the marketing and sale process of Fidelity with an anticipated sale to occur within one year. Between September 2015 and March 2016, the Company entered into purchase and sale agreements to sell all of Fidelity's marketed oil and natural gas assets. The completion of these sales occurred between October 2015 and April 2016. The sale of Fidelity was part of the Company's strategic plan to grow its capital investments in the remaining business segments and to focus on creating a greater long-term value. The assets and liabilities for these operations have been classified as held for sale and the results of operations are shown in income (loss) from discontinued operations, other than certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. The Company's consolidated financial statements and accompanying notes for current and prior periods have been restated. At the time the assets were classified as held for sale, depreciation, depletion and amortization expense was no longer recorded.
The carrying amounts of the major classes of assets and liabilities that are classified as held for sale on the Company's Consolidated Balance Sheets were as follows:
 
March 31, 2016

March 31, 2015

December 31, 2015

 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Receivables, net
$
3,619

$
58,125

$
13,387

Inventories
1,308

8,526

1,308

Commodity derivative instruments
—

7,127

—

Income taxes receivable
50,478

12,666

9,665

Prepayments and other current assets
2,348

4,761

221

Total current assets held for sale
57,753

91,205

24,581

Noncurrent assets:
 
 
 
Investments
37

37

37

Net property, plant and equipment
9,363

1,110,592

793,422

Deferred income taxes
86,614

—

127,655

Other
161

2,900

161

Less allowance for impairment of assets held for sale
(1,374
)
—

754,541

Total noncurrent assets held for sale
97,549

1,113,529

166,734

Total assets held for sale
$
155,302

$
1,204,734

$
191,315

Liabilities
 
 
 
Current liabilities:
 
 
 
Long-term debt due within one year
$
—

$
754

$
—

Accounts payable
7,963

54,623

25,013

Taxes payable
35

4,125

1,052

Deferred income taxes
3,620

4,398

3,620

Accrued compensation
761

2,891

13,080

Other accrued liabilities
4,791

15,522

4,838

Total current liabilities held for sale
17,170

82,313

47,603

Noncurrent liabilities:
 
 
 
Deferred income taxes
—

69,456

—

Asset retirement obligations
—

53,202

—

Other liabilities
—

192

—

Total noncurrent liabilities held for sale
—

122,850

—

Total liabilities held for sale
$
17,170

$
205,163

$
47,603


The Company performed a fair value assessment of the assets and liabilities classified as held for sale. In the first quarter of 2016, the fair value assessment was determined using the market approach largely based on a purchase and sale agreement. The estimated fair value exceeded the carrying value and the Company recorded an impairment reversal of $1.4 million ($900,000 after tax) in the first quarter of 2016. The impairment reversal was included in operating expenses from discontinued operations. The estimated fair value of Fidelity's assets have been categorized as Level 3 in the fair value hierarchy. In 2015, the Company recorded impairments totaling $754.5 million ($475.4 million after tax) related to the assets and liabilities classified as held for sale. For more information, see Part II, Item 8 - Note 2, in the 2015 Annual Report.
At March 31, 2016, the Company had accrued liabilities of approximately $300,000 for estimated transaction costs which will result in future cash expenditures. The Company incurred transaction costs of approximately $2.5 million in 2015. In addition to the transaction costs, and due in part to the change in plans to sell the assets of Fidelity rather than sell Fidelity as a company, Fidelity incurred and expensed approximately $1.8 million of exit and disposal costs in the first quarter of 2016, and has incurred $6.7 million of exit and disposal costs to date. The Company expects to incur an additional $4.3 million of exit and disposal costs for the remainder of 2016. The exit and disposal costs are associated with severance and other related matters, excluding the office lease expiration discussed in the following paragraph. The majority of these exit and disposal activities are expected to be completed by the end of the second quarter of 2016.
Fidelity is vacating its office space in Denver, Colorado. An amendment of lease has been executed with payments of $3.7 million outstanding required under the lease amendment at March 31, 2016. The Company incurred approximately $500,000 of lease payments in the first quarter of 2016. A termination payment of $3.3 million was made during the fourth quarter of 2015 and existing office furniture and fixtures will be relinquished to the lessor in the second quarter of 2016.
Historically, the Company used the full-cost method of accounting for its oil and natural gas production activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized and amortized on the units-of-production method based on total proved reserves.
Prior to the oil and natural gas properties being classified as held for sale, capitalized costs were subject to a "ceiling test" that limits such costs to the aggregate of the present value of future net cash flows from proved reserves discounted at 10 percent, as mandated under the rules of the SEC, plus the cost of unproved properties not subject to amortization, plus the effects of cash flow hedges, less applicable income taxes. Proved reserves and associated future cash flows are determined based on SEC Defined Prices and exclude cash outflows associated with asset retirement obligations that have been accrued on the balance sheet. If capitalized costs, less accumulated amortization and related deferred income taxes, exceed the full-cost ceiling at the end of any quarter, a permanent noncash write-down is required to be charged to earnings in that quarter regardless of subsequent price changes.
The Company's capitalized cost under the full-cost method of accounting exceeded the full-cost ceiling at March 31, 2015. SEC Defined Prices, adjusted for market differentials, were used to calculate the ceiling test. Accordingly, the Company was required to write down its oil and natural gas producing properties. The Company recorded a $500.4 million ($315.3 million after tax) noncash write-down in operating expenses from discontinued operations in the first quarter of 2015.
The reconciliation of the major classes of income and expense constituting pretax loss from discontinued operations to the after-tax net loss from discontinued operations on the Company's Consolidated Statements of Income were as follows:
 
Three Months Ended
 
March 31,
 
2016

2015

 
(In thousands)
Operating revenues
$
2,910

$
54,936

Operating expenses
4,470

572,952

Operating loss
(1,560
)
(518,016
)
Other income
6

1,881

Interest expense
13

21

Loss from discontinued operations before income taxes
(1,567
)
(516,156
)
Income taxes
(732
)
(191,551
)
Loss from discontinued operations
$
(835
)
$
(324,605
)