6. OIL AND NATURAL GAS PROPERTIES

Oil and natural gas properties as of December 31, 2018 and 2017 consisted of the following (in thousands):


	December 31, 2018		December 31, 2017
Subject to depletion	$	1,470,509	$	877,316
Not subject to depletion:
Exploration and extension wells in progress		23,536		5,298
Other capital costs:
Incurred in 2018		310,113		—
Incurred in 2017		638,269		760,488
Incurred in 2016		—		—
Incurred in 2015 and prior		—		—
Total not subject to depletion		971,918		765,786
Gross oil and natural gas properties		2,442,427		1,643,102
Less accumulated depletion		(639,951)		(570,155)
Net oil and natural gas properties	$	1,802,476	$	1,072,947

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.

Additionally, the Company assesses all properties classified as unevaluated property on a quarterly basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group, if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and the full cost ceiling test limitation. In March 2016, the Company transferred the remaining unevaluated Utica and TMS properties of approximately $330.4 million and $74.8 million, respectively, to the full cost pool. For the quarter ended March 31, 2016, management concluded that it was no longer probable that capital would be available or approved to continue exploratory drilling activities in the Company’s Utica or TMS acreage positions in advance of the related lease expirations due to the Company’s evaluation of strategic alternatives to reduce its debt and preserve liquidity in light of continued low commodity prices, together with a reduction of the Company’s exploration department and the Company’s intent to expend capital only on its most economical and proven areas.

Investments in unevaluated oil and natural gas properties and exploration and development projects for which depletion expense is not currently recognized, and for which exploration or development activities are in progress, qualify for interest capitalization. The Predecessor Company determined capitalized interest by multiplying the Predecessor Company’s weighted‑average borrowing cost on debt by the average amount of qualifying costs incurred that were excluded from the full cost pool; however, the amount of capitalized interest cannot exceed the amount of gross interest expense incurred in any given period. The capitalized interest amounts were recorded as additions to unevaluated oil and natural gas properties on the consolidated balance sheets. As the costs excluded were transferred to the full cost pool, the associated capitalized interest was also transferred to the full cost pool. For the period from January 1, 2016 through September 9, 2016, the Predecessor Company capitalized interest costs of $68.2 million. The Successor Company’s policy on the capitalization of interest establishes thresholds for the determination of a development project for the purpose of interest capitalization.

The ceiling test value of the Company’s reserves was calculated based on the following prices:


	West Texas
	Intermediate		Henry Hub
	(per barrel) (1)		(per MMBtu) (1)
December 31, 2018	$	65.56	$	3.100
December 31, 2017		51.34		2.976
December 31, 2016		42.75		2.481

(1) Unweighted average of the first day of the 12‑months ended spot price, adjusted by lease or field for quality, transportation fees and market differentials.

The Company’s net book value of oil and natural gas properties in 2018 and 2017 did not exceed the ceiling amount. The Company’s net book value of oil and natural gas properties at March 31, June 30 and September 30, 2016 exceeded the ceiling amount. The Company recorded full cost ceiling test impairments before income taxes of $420.9 million ($268.1 million after taxes, before valuation allowance) for the period of September 10, 2016 through September 30, 2016 and $754.8 million ($478.2 million after taxes, before valuation allowance) for the six months ended June 30, 2016. The impairment at September 30, 2016 reflects the differences between the first day of the month average prices for the preceding twelve months required by Regulation S-X, Rule 4-10 and ASC 932 in calculating the ceiling test and the forward-looking prices required by ASC 852 to estimate the fair value of the Company’s oil and natural gas properties on the fresh-start reporting date of September 9, 2016. The ceiling test impairments at March 31, 2016 and June 30, 2016, were driven by decreases in the first-day-of-the-month 12-month average prices for crude oil used in the ceiling test calculations since December 31, 2015. The impairment at March 31, 2016 also reflects the transfer of the remaining unevaluated Utica and TMS properties, as discussed above.

The Company recorded the full cost ceiling test impairments in “Full cost ceiling impairment” in the Company’s consolidated statements of operations and in “Accumulated depletion” in the Company’s consolidated balance sheets.

Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties to the full cost pool, capital spending, and other factors will determine the Company’s actual ceiling test calculation and impairment analyses in future periods.