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Acquisitions, Divestitures, and Assets Held for Sale | 12 Months Ended
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Dec. 31, 2016
Acquisitions, Divestitures, and Assets Held for Sale Disclosure [Abstract] |
Acquisitions, Divestitures, and Assets Held for Sale | Note 3 – Acquisitions, Divestitures, and Assets Held for Sale 2016 Acquisition Activity
• | Rock Oil Acquisition. On October 4, 2016, the Company acquired all membership interests of JPM EOC Opal, LLC, which owned proved and unproved properties in the Midland Basin, from Rock Oil Holdings, LLC (referred to as the “Rock Oil Acquisition”) for an adjusted purchase price of $991.0 million. The effective date of the acquisition was September 1, 2016. The Company funded the acquisition with proceeds from divestitures in 2016 and the Senior Convertible Notes and equity offerings in August 2016, as discussed in Note 5 - Long-Term Debt and Note 15 - Equity, respectively.
The Company determined that the Rock Oil Acquisition met the criteria of a business combination under ASC Topic 805, Business Combinations. The Company allocated the preliminary adjusted purchase price to the acquired assets and liabilities based on fair value as of the acquisition date, as summarized in the table below. This measurement resulted in no goodwill or bargain purchase gain being recognized. Refer to Note 11 - Fair Value Measurements for additional discussion on the valuation techniques used in determining the fair value of the acquired properties. The acquisition costs were insignificant and were expensed as incurred.
| As of October 4, 2016
| (in thousands)
Cash consideration | $ | 991,038 |
Fair value of assets and liabilities acquired: |
Wells in progress | $ | 5,672 |
Proved oil and gas properties | 81,917 |
Unproved oil and gas properties | 913,594 |
Other assets | 5,338 |
Total fair value of oil and gas properties acquired | 1,006,521 |
Working capital | (7,888 | )
Asset retirement obligation | (7,595 | )
Total fair value of net assets acquired | $ | 991,038 |
• | QStar Acquisition. On December 21, 2016, the Company acquired additional proved and unproved properties in the Midland Basin from QStar LLC and RRP-QStar, LLC (referred to as the “QStar Acquisition”) for $1.6 billion, consisting of $1.2 billion in cash consideration and the issuance of approximately 13.4 million shares of the Company’s common stock. The cash consideration was funded by proceeds from the recent Raven/Bear Den divestiture and the December 2016 equity offering. Please refer to Note 15 - Equity for additional discussion. The effective date of the acquisition was September 1, 2016. Under authoritative accounting guidance, the transaction was considered an asset acquisition, and therefore, the properties were recorded based on the fair value of the total consideration transferred on the acquisition date and transaction costs were capitalized as a component of the cost of the assets acquired.
The Company allocated the preliminary adjusted purchase price to the acquired assets and liabilities, as summarized in the table below.
| As of December 21, 2016
| (in thousands)
Cash consideration, including acquisition costs paid | $ | 1,167,373 |
Fair value of equity consideration (1) | 437,194 |
Total consideration at closing | $ | 1,604,567 |
Assets and liabilities acquired: |
Wells in progress | $ | 21,812 |
Proved oil and gas properties | 61,614 |
Unproved oil and gas properties | 1,537,923 |
Total oil and gas properties acquired | 1,621,349 |
Working capital | (9,141 | )
Asset retirement obligation | (7,641 | )
Total net assets acquired | $ | 1,604,567 |
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(1) | The Company issued approximately 13.4 million shares of common stock, par value $0.01 per share, in a private placement to the sellers in the QStar Acquisition on December 21, 2016. The equity consideration was valued on this date using Level 1 and Level 2 inputs with a discount applied due to the lack of marketability in the near term in accordance with the Lock-Up and Registration Rights Agreement that prohibits the sale of such stock until no earlier than the 90th day after issuance.
The Rock Oil Acquisition and QStar Acquisition are each subject to normal post-closing adjustments expected to occur in the first half of 2017. These post-closing adjustments are estimated as of December 31, 2016, and reflected in the tables above.
• | Other Acquisitions. During the fourth quarter of 2016, the Company entered into a definitive purchase agreement to acquire approximately 2,900 net acres of oil and gas assets in the Midland Basin for a gross purchase price of $60 million, subject to customary purchase price adjustments. This acquisition closed subsequent to December 31, 2016.
2015 Acquisition Activity There was no significant acquisition activity during the year ended December 31, 2015. 2014 Acquisition Activity
• | Gooseneck Property Acquisitions
On September 24, 2014, the Company acquired approximately 61,000 net acres of proved and unproved oil and gas properties in its Gooseneck area in North Dakota, along with related equipment, contracts, records, and other assets. Total cash consideration paid by the Company after final closing adjustments was $321.8 million and the effective date for the acquisition was July 1, 2014. On October 15, 2014, the Company acquired additional interests in proved and unproved oil and gas properties in its Gooseneck area. Total cash consideration paid by the Company was $84.8 million and the effective date for the acquisition was August 1, 2014. Each of these acquisitions qualified as a business combination under ASC Topic 805, Business Combinations. The Company allocated the final adjusted purchase prices to the acquired assets and liabilities based on fair value as of the respective acquisition dates, as summarized in the table below. These measurements resulted in no goodwill or bargain purchase gain being recognized.
| Acquisition #1 |  | Acquisition #2
| As of September 24, 2014 |  | As of October 15, 2014
| (in thousands)
Cash consideration | $ | 321,807 |  |  | $ | 84,836 |
Fair value of assets and liabilities acquired: |  |  |
Proved oil and gas properties | $ | 203,467 |  |  | $ | 54,612 |
Unproved oil and gas properties | 126,588 |  |  | 29,610 |
Total fair value of oil and gas properties acquired | 330,055 |  |  | 84,222 |
Working capital | (6,135 | ) |  | 2,232 |
Asset retirement obligation | (2,113 | ) |  | (1,618 | )
Total fair value of net assets acquired | $ | 321,807 |  |  | $ | 84,836 |
• | Rocky Mountain Acquisitions. In addition to the Gooseneck property acquisitions discussed above, the Company acquired other proved and unproved properties in its Rocky Mountain region during 2014, primarily in the Powder River Basin, in multiple transactions for approximately $135.5 million in total cash consideration after final closing adjustments, plus approximately 7,000 net acres of non-core assets in the Company’s Rocky Mountain region.
2016 Divestiture Activity
• | Rocky Mountain Divestitures. During the third quarter of 2016, the Company divested certain non-core properties in the Williston Basin and Powder River Basin in two separate packages for total cash received at closing, net of commissions and payments to Net Profits Plan participants (referred throughout this report as “net divestiture proceeds”), of $110.6 million. The Company recorded a net gain of $16.4 million related to these divested assets for the year ended December 31, 2016.
During the fourth quarter of 2016, the Company divested certain Williston Basin assets located outside of Divide County, North Dakota (referred to as “Raven/Bear Den” throughout this report) for net divestiture proceeds of $756.2 million. The Company recorded a net gain of $29.5 million related to these divested assets for the year ended December 31, 2016. In conjunction with the divestiture of certain Rocky Mountain assets, the Company closed its Billings, Montana office. Please refer to Note 14 - Exit and Disposal Costs for additional discussion. The following table presents income (loss) before income taxes of the Raven/Bear Den assets sold on December 1, 2016, for the years ended December 31, 2016, 2015, and 2014. This divestiture is considered a disposal of a significant asset group.
| For the Years Ended December 31,
| 2016 |  | 2015 |  | 2014
| (in thousands)
Income (loss) before income taxes (1) | $ | (6,601 | ) |  | $ | (12,530 | ) |  | $ | 197,256 |
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(1) | Income (loss) before income taxes reflects oil, gas, and NGL production revenue, less oil, gas, and NGL production expense and depletion, depreciation, amortization, and asset retirement obligation liability accretion. Additionally, income (loss) before income taxes includes impairment of proved properties expense of approximately $17.8 million for the year ended December 31, 2015.
• | Permian Divestiture. During the third quarter of 2016, the Company divested its non-core properties in southeast New Mexico for net divestiture proceeds of $54.6 million and recorded a net loss of $10.1 million for the year ended December 31, 2016.
Each of these divestitures are subject to normal post-closing adjustments, and the respective post-closings are expected to occur in the first half of 2017. 2015 Divestiture Activity
• | Mid-Continent Divestiture. During the second quarter of 2015, the Company divested its Mid-Continent assets in multiple transactions for total net divestiture proceeds of $310.3 million and a final net gain of $108.4 million. In conjunction with the divestiture of its Mid-Continent assets, the Company closed its Tulsa, Oklahoma office. Please refer to Note 14 - Exit and Disposal Costs for additional discussion.
• | Permian Divestiture. During the fourth quarter of 2015, the Company divested certain non-core assets in its Permian region. Net divestiture proceeds were $25.1 million and the final net gain on this divestiture was $2.3 million.
Write-downs on certain other assets held for sale and subsequently sold during the year ended December 31, 2015, totaled $68.6 million, which partially offset the net gain on the Mid-Continent and Permian divestitures discussed above. 2014 Divestiture Activity
• | Rocky Mountain Divestiture. During the second quarter of 2014, the Company divested certain non-core assets in the Montana portion of the Williston Basin. Net divestiture proceeds were $42.0 million and the final net gain on this divestiture was $26.9 million.
The Company recorded $27.6 million of write-downs to fair value less estimated costs to sell for assets that were held for sale during the year ended December 31, 2014, which offset the net gain on the Rocky Mountain Divestiture discussed above. Assets Held for Sale Assets are classified as held for sale when the Company commits to a plan to sell the assets and there is reasonable certainty the sale will take place within one year. Upon classification as held for sale, long-lived assets are no longer depreciated or depleted, and a measurement for impairment is performed to identify and expense any excess of carrying value over fair value less costs to sell. Any subsequent changes to the fair value less estimated costs to sell impact the measurement of assets held for sale, with any gain or loss reflected in the net gain on divestiture activity line item in the accompanying statements of operations. As of December 31, 2016, the accompanying balance sheets present $372.6 million of assets held for sale, net of accumulated depletion, depreciation, and amortization expense, which consists of the Company’s outside-operated Eagle Ford shale assets. A corresponding aggregate asset retirement obligation liability of $26.2 million is separately presented. There were no material assets held for sale as of December 31, 2015. Subsequent to December 31, 2016, the Company entered into a definitive agreement with Venado EF LLC (“Venado”) for the sale of its outside-operated Eagle Ford shale assets, including its ownership interest in related midstream assets (the “Eagle Ford Transaction”) for a gross purchase price of $800 million, subject to customary purchase price adjustments. The Company expects to close the Eagle Ford Transaction in the first quarter of 2017. Pursuant to the Venado definitive agreement, the Company entered into certain NYMEX swap contracts to be novated to Venado at closing, as summarized below:
• | Oil swap contracts through the fourth quarter of 2021 for a total of 4.3 million Bbls of oil production at contract prices ranging from $54.05 to $57.00 per Bbl.
• | Gas swap contracts through the fourth quarter of 2021 for a total of 4.6 million MMBtu of gas production at contract prices ranging from $2.82 to $2.99 per MMBtu.
• | NGL swap contracts through the fourth quarter of 2019 for a total of 4.5 million Bbls of NGL production at contract prices ranging from $11.81 to $48.51 per Bbl.
The Company is not at risk of a net financial obligation with the derivative counterparties should the value of the contracts become negative, unless the Eagle Ford Transaction is terminated because the Company did not comply in all material respects with its covenants under the definitive agreement or because of a material inaccuracy of the Company’s representations and warranties. The closing of the Eagle Ford Transaction is subject to the satisfaction of customary closing conditions, and there can be no assurance that it will close on the expected closing date or at all. The following table presents income (loss) before income taxes for the years ended December 31, 2016, 2015, and 2014, of the Company’s outside-operated Eagle Ford shale assets held for sale as of December 31, 2016, which is considered a significant asset disposal group.
| For the Years Ended December 31,
| 2016 |  | 2015 |  | 2014
| (in thousands)
Income (loss) before income taxes (1) | $ | (218,506 | ) |  | $ | 71,556 |  |  | $ | 294,376 |
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(1) | Income (loss) before income taxes reflects oil, gas, and NGL production revenue less oil, gas, and NGL production expense and depletion, depreciation, amortization, and asset retirement obligation liability accretion expense. Additionally, loss before income taxes for the year ended December 31, 2016, includes $269.6 million of proved property impairment expense.
Subsequent to December 31, 2016, the Company announced its plans to sell its remaining Williston Basin assets in the Divide County, North Dakota area (referred to as “Divide County” throughout this report) by mid-year 2017. These assets were classified as held and used as of December 31, 2016. Based on preliminary estimates of fair value less selling costs as of the filing date of this report, the Company expects to record a write down in the range of $200 million to $400 million in the first quarter of 2017 upon the Divide County assets being reclassified to held for sale. The Company determined that neither these planned nor executed asset sales qualify for discontinued operations accounting under financial statement presentation authoritative guidance.

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