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OIL AND NATURAL GAS PROPERTIES | 9 Months Ended
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Sep. 30, 2019
OIL AND NATURAL GAS PROPERTIES |
OIL AND NATURAL GAS PROPERTIES | 6. OIL AND NATURAL GAS PROPERTIES 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. At September 30, 2019, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended September 30, 2019 of the West Texas Intermediate (WTI) crude oil spot price of $57.69 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended September 30, 2019 of the Henry Hub natural gas price of $2.87 per million British thermal units (MMBtu), adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at September 30, 2019 exceeded the ceiling amount by $45.6 million which resulted in a ceiling test impairment charge of that amount for the quarter. The ceiling test impairment at September 30, 2019 was driven by decreases in the first-day-of-the-month 12-month average prices for crude oil used in the ceiling test calculation since June 30, 2019, when the first-day-of-month 12-month average price for crude oil was $61.45 per barrel. At June 30, 2019, the Company recorded a full cost ceiling impairment of $664.4 million. The ceiling test impairment at June 30, 2019 was primarily driven by the Company's continued focus on its most economic area, Monument Draw. Accordingly, the Company transferred approximately $481.7 million of unevaluated property costs to the full cost pool as of June 30, 2019, the majority of which were associated with the Company’s Hackberry Draw area. At March 31, 2019, the Company recorded a full cost ceiling impairment of $275.2 million. The ceiling test impairment at March 31, 2019 was driven by a decrease in the first-day-of-the-month average price for crude oil used in the ceiling test calculation and the Company’s intent to expend capital only on its most economic areas. As such, the Company identified certain leases in the Hackberry Draw area with near-term expirations and transferred approximately $51.0 million of associated unevaluated property costs to the full cost pool during the three months ended March 31, 2019. The impairments were recorded in “Full cost ceiling test impairment” on the unaudited condensed consolidated statements of operations. At September 30, 2018, the ceiling test value of the Company’s reserves was calculated based on the first-day-of-the-month average for the 12-months ended September 30, 2018 of the WTI crude oil spot price of $63.43 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended September 30, 2018 of the Henry Hub natural gas price of $2.91 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials. Using these prices, the Company’s net book value of oil and natural gas properties at September 30, 2018 did not exceed the ceiling amount. 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 ceiling test calculations and impairment analyses in future periods. On September 7, 2017, the Company and certain of its subsidiaries sold of all of the Company’s operated oil and natural gas leases, oil and natural gas wells and related assets located in the Williston Basin in North Dakota, as well as 100% of the membership interests in two of its subsidiaries for a total adjusted sales price of approximately $1.39 billion (the Williston Divestiture). Under the full cost method of accounting, sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized, unless the adjustment significantly alters the relationship between capitalized costs and proved reserves. If the Williston Divestiture was accounted for as an adjustment of capitalized costs with no gain or loss recognized, the adjustment would have significantly altered the relationship between capitalized costs and proved reserves. Accordingly, the Company recognized a gain on the sale of the Williston Assets of $485.9 million during the year ended December 31, 2017. This gain was reduced by $7.2 million during the nine months ended September 30, 2018 as the result of customary post-closing adjustments. The carrying value of the properties sold was determined by allocating total capitalized costs within the full cost pool between properties sold and properties retained based on their relative fair values. The gain (loss) was recorded in “Gain (loss) on sale of oil and natural gas properties,” on the Company’s unaudited condensed consolidated statements of operations.

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- Definition The entire disclosure for oil and gas enterprises that follow the full cost method of accounting for investments in oil and gas properties. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 932 -URI http://asc.fasb.org/topic&trid=2145477 + Details
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