Note 3 - Acquisition

Permian Basin Acquisition

On February 25, 2014, QEP Energy acquired oil and gas properties in the Permian Basin of Texas for an aggregate purchase price of $945.0 million, subject to customary post-closing adjustments (the Permian Basin Acquisition). The acquired properties consist of approximately 26,500 net acres of producing and undeveloped oil and gas properties and approximately 270 vertical producing wells in the Permian Basin, which creates a new core area of operation for QEP Energy. The acquisition was funded with $50.0 million of restricted cash, $300.0 million from the Company's expanded term loan and approximately $595.0 million from its revolving credit facility.

Concurrent with the Permian Basin Acquisition, QEP entered into a transaction structured as a reverse like-kind exchange in accordance with Section 1031 of the Internal Revenue Code. In connection with this reverse like-kind exchange, QEP assigned the ownership of the Permian Basin oil and gas properties acquired to a variable interest entity. QEP operates the properties pursuant to lease and management agreements with that entity, and has a call option which allows the Company to terminate the exchange transaction at any time up and until the expiration date of the exchange. Because the Company is the primary beneficiary of these arrangements, the properties acquired are included in its Condensed Consolidated Balance Sheet as of March 31, 2014, and all revenues earned, expenses incurred, and cash flows related to the properties will be included in the Company’s Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows during the term of the agreement. The agreements will terminate upon the transfer of the acquired properties from the exchange accommodation titleholder to QEP following the exercise of the call option but in no event later than August 24, 2014, the expiration date for this exchange.

The Permian Basin Acquisition meets the definition of a business combination under ASC 805, Business Combinations, as it included significant proved properties. QEP allocated the cost of the Permian Basin Acquisition to assets acquired and liabilities assumed based on fair values as of the acquisition date. Revenues of $14.9 million and net income of $3.7 million were generated from the acquired properties from February 25, 2014, to March 31, 2014, and are included in QEP's Condensed Consolidated Statements of Operations. During the quarter ended March 31, 2014, QEP Energy's acquisition-related costs of $0.5 million which are included in "General and administrative" on the Condensed Consolidated Statements of Operations. QEP incurred $1.1 million of debt issuance costs associated with increasing the size of term loan borrowings to fund a portion of the acquisition, which are included in "Other noncurrent assets" on the Condensed Consolidated Balance Sheet.

QEP Energy recorded the Permian Basin Acquisition on its Condensed Consolidated Balance Sheets; however, the final purchase price is subject to post-closing adjustments. The following table presents a summary of the Company's preliminary purchase accounting entries:



	As of March 31, 2014
	(in millions)
Consideration given:
Cash consideration	$	945.0
Amounts recognized for preliminary fair value of assets acquired and liabilities assumed:
Proved properties	$	516.1
Unproved properties	439.7
Asset retirement obligations	(9.7		)
Liabilities assumed	(1.1		)
Total fair value	$	945.0

The following unaudited, pro forma results of operations are provided for the three months ended March 31, 2014 and 2013. These supplemental pro forma results of operations are provided for illustrative purposes only and may not be indicative of the actual results that would have been achieved by the acquired properties for the period presented or that may be achieved by such properties in the future. Future results may vary significantly from the results reflected in this pro forma financial information because of future events and transactions, as well as other factors. The pro forma information is based on QEP's consolidated results of operations for the three months ended March 31, 2014 and 2013, the acquired properties' historical results of operations, and estimates of the effect of the transaction on the combined results. The pro forma results of operations have been prepared by adjusting the historical results of QEP to include the historical results of the acquired properties based on information provided by the seller and the impact of the preliminary purchase price allocation. The pro forma results of operations do not include any cost savings or other synergies that may result from the Permian Basin Acquisition or any estimated costs that have been or will be incurred by the Company to integrate the acquired properties.



	Three Months Ended				Three Months Ended
	March 31, 2014				March 31, 2013
	Actual		Pro forma		Actual			Pro forma
	(in millions, except per share data)
Revenues	$	883.9	$	910.0	$	696.5		$	731.0
Net income attributable to QEP	39.7		46.7		(4.3		)	3.6
Earnings per common share attributable to QEP
Basic	$	0.22	$	0.26	$	(0.02	)	$	0.02
Diluted	0.22		0.26		(0.02		)	0.02