2. Summary of Significant Accounting Policies

Revenue Recognition

Impact of ASC 606 Adoption. Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606) (“ASC 606”) using the modified retrospective method and has applied the standard to all existing contracts. ASC 606 supersedes previous revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration in exchange for those goods or services. As a result of adopting ASC 606, the Company did not have a cumulative-effect adjustment in retained earnings. The comparative information for the three and six months ended June 30, 2017 has not been recast and continues to be reported under the accounting standards in effect for that period. Additionally, adoption of ASC 606 did not impact net income attributable to common shareholders and the Company does not expect that it will do so in future periods.

The tables below summarizes the impact of adoption for the three and six months ended June 30, 2018:



	Three Months Ended June 30, 2018
	Under ASC 606		Under ASC 605		Increase		% Increase
	(In thousands)
Revenues
Crude oil		$229,798		$229,658		$140	0.1	%
Natural gas liquids	21,269		20,139		1,130		5.6	%
Natural gas	12,906		12,272		634		5.2	%
Total revenues	263,973		262,069		1,904		0.7	%

Costs and Expenses
Lease operating	35,151		33,247		1,904		5.7	%

Income Before Income Taxes		$35,792		$35,792		$—	—	%



	Six Months Ended June 30, 2018
	Under ASC 606		Under ASC 605		Increase		% Increase
	(In thousands)
Revenues
Crude oil		$424,717		$424,452		$265	0.1	%
Natural gas liquids	38,171		36,235		1,936		5.3	%
Natural gas	26,365		25,159		1,206		4.8	%
Total revenues	489,253		485,846		3,407		0.7	%

Costs and Expenses
Lease operating	74,424		71,017		3,407		4.8	%

Income Before Income Taxes		$63,603		$63,603		$—	—	%

Changes to crude oil, NGL, and natural gas revenues and lease operating expense are due to the conclusion that the Company controls the product throughout processing before transferring to the customer for certain natural gas processing arrangements. Therefore, any transportation, gathering, and processing fees incurred prior to transfer of control are included in lease operating expense.

The Company’s revenues are comprised solely of revenues from customers and include the sale of crude oil, NGLs, and natural gas. The Company believes that the disaggregation of revenue into these three major product types appropriately depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors based on our single geographic location. Crude oil, NGL, and natural gas revenues are recognized at a point in time when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, control has transferred and collectability of the revenue is probable. The transaction price used to recognize revenue is a function of the contract billing terms. Revenue is invoiced by calendar month based on volumes at contractually based rates with payment typically required within 30 days of the end of the production month. At the end of each month when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in “Accounts receivable, net” in the consolidated balance sheets. As of June 30, 2018 and December 31, 2017, receivables from contracts with customers were $87.1 million and $85.6 million, respectively. Taxes assessed by governmental authorities on crude oil, NGL, and natural gas sales are presented separately from such revenues in the consolidated statements of income.

Crude oil sales. Crude oil production is primarily sold at the wellhead at an agreed upon index price, net of pricing differentials. Revenue is recognized when control transfers to the purchaser at the wellhead, net of transportation costs incurred by the purchaser.

Natural gas and NGL sales. Natural gas is delivered to a midstream processing entity at the wellhead or the inlet of the midstream processing entity’s system. The midstream processing entity gathers and processes the natural gas and remits proceeds for the resulting sales of NGLs and residue gas. The Company evaluates whether it is the principal or agent in the transaction and has concluded it is the principal and the ultimate third party is the customer. Revenue is recognized on a gross basis, with gathering, processing and transportation fees presented in “Lease operating expense” in the consolidated statements of income as the Company maintains control throughout processing.

Transaction Price Allocated to Remaining Performance Obligations. The Company applied the practical expedient in ASC 606 exempting the disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Each unit of product typically represents a separate performance obligation, therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

Recently Adopted Accounting Pronouncements

Business Combinations. In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or divestitures) of assets or businesses. Effective January 1, 2018, the Company adopted ASU 2017-01 using the prospective method and will apply the clarified definition of a business to future acquisition and divestitures.

Statement of Cash Flows. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance addresses eight specific cash flow issues for which current GAAP is either unclear or does not include specific guidance. Effective January 1, 2018, the Company adopted ASU 2016-15 using the retrospective approach as prescribed by ASU 2016-15. There were no changes to the statement of cash flows as a result of adoption.

Recently Issued Accounting Pronouncements

Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which significantly changes accounting for leases by requiring that lessees recognize a right-of-use asset and a related lease liability representing the obligation to make lease payments, for virtually all lease transactions. ASU 2016-02 does not apply to leases of mineral rights to explore for or use crude oil and natural gas. Additional disclosures about an entity’s lease transactions will also be required. ASU 2016-02 defines a lease as “a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration.” ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. ASU 2016-02 requires companies to recognize and measure leases at the beginning of the earliest period presented in the financial statements using a modified retrospective approach.

The Company is in the process of reviewing and determining the contracts to which ASU 2016-02 applies with the assistance of a third party consultant. These include contracts such as non-cancelable leases, drilling rig contracts, pipeline gathering, transportation and gas processing agreements, and contracts for the use of vehicles and well equipment. The Company continues to review current accounting policies, controls, processes, and disclosures that will change as a result of adopting the new standard. Based upon its initial assessment, the Company expects the adoption of ASU 2016-02 will result in: (i) an increase in assets and liabilities due to the required recognition of right-of-use (“ROU”) assets and corresponding lease liabilities, (ii) increases in depreciation, depletion and amortization and interest expense, (iii) decreases in lease operating and general and administrative expense and (iv) additional disclosures, however, the full impact to the Company’s consolidated financial statements and related disclosures is still being evaluated. Currently, the Company plans to make certain elections allowing the Company not to reassess contracts that commenced prior to adoption, to continue applying its current accounting policy for land easements, and not to recognize ROU assets or lease liabilities for short-term leases. The Company plans to adopt the guidance on the effective date of January 1, 2019. As permitted by ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, the Company does not expect to adjust comparative-period financial statements.

Other than as disclosed above or in the Company’s 2017 Form 10-K, there are no other accounting standard updates applicable to the Company that would have a material effect on the Company’s consolidated financial statements and related disclosures that have been issued but not yet adopted by the Company as of June 30, 2018, and through the filing of this report.

Net Income Attributable to Common Shareholders Per Common Share

Supplemental net income attributable to common shareholders per common share information is provided below:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(In thousands, except per share amounts)
Net Income Attributable to Common Shareholders		$30,095		$56,306		$44,838		$96,327
Basic weighted average common shares outstanding	82,058		65,767		81,802		65,479
Effect of dilutive instruments	1,795		141		1,438		387
Diluted weighted average common shares outstanding	83,853		65,908		83,240		65,866
Net Income Attributable to Common Shareholders Per Common Share
Basic		$0.37		$0.86		$0.55		$1.47
Diluted		$0.36		$0.85		$0.54		$1.46

The table below presents the a reconciliation of the basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three and six months ended June 30, 2018 and 2017:



	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
	(In thousands)
Basic weighted average common shares outstanding	82,058	65,767	81,802	65,479
Dilutive unvested restricted stock awards and units	833	141	640	387
Dilutive unvested performance shares	134	—	158	—
Dilutive exercisable common stock warrants	828	—	640	—
Diluted weighted average common shares outstanding	83,853	65,908	83,240	65,866

The table below presents a summary of the common shares outstanding that were excluded from the computation of diluted net income attributable to common shareholders per common share for the three and six months ended June 30, 2018 and 2017, as their inclusion would be anti-dilutive:



	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
	(In thousands)
Anti-dilutive unvested restricted stock awards and units	16	101	17	16
Anti-dilutive unvested performance shares	—	108	2	62
Anti-dilutive exercisable common stock warrants	—	—	—	—
Total anti-dilutive	16	209	19	78