2016 Permian Basin Acquisition

In October 2016, QEP acquired oil and gas properties in the Permian Basin for an aggregate purchase price of approximately $591.0 million, subject to customary post-closing purchase price adjustments (the 2016 Permian Basin Acquisition). The 2016 Permian Basin Acquisition consisted of approximately 9,600 net acres in Martin County, Texas, which are primarily held by production from existing vertical wells. The 2016 Permian Basin Acquisition was funded with cash on hand, which included proceeds from an equity offering in June 2016.

The 2016 Permian Basin Acquisition meets the definition of a business combination under ASC 805, Business Combinations, as it includes significant proved properties. QEP allocated the cost of the 2016 Permian Basin Acquisition to assets acquired and liabilities assumed based on fair values as of the acquisition date. Revenues of $18.8 million and $38.6 million and net income of $3.5 million and $5.4 million were generated from the acquired properties during the three and nine months ended September 30, 2017, respectively, and are included in QEP's Condensed Consolidated Statements of Operations. In conjunction with the 2016 Permian Basin Acquisition, the Company recorded an $18.2 million bargain purchase gain in 2016. The acquisition resulted in a bargain purchase gain primarily as a result of an increase in future oil prices from the execution of the purchase and sale agreement to the closing date of the acquisition. During the nine months ended September 30, 2017, the Company reduced the bargain purchase gain by $0.4 million due to purchase price adjustments. The bargain purchase gain is reported on the Condensed Consolidated Statements of Operations within "Interest and other income (expense)".

The following table presents a summary of the Company's purchase accounting entries (in millions) as of September 30, 2017:



Consideration:
Total consideration	$	591.0

Amounts recognized for fair value of assets acquired and liabilities assumed:
Proved properties	$	406.2
Unproved properties	214.2
Asset retirement obligations	(11.6		)
Bargain purchase gain	(17.8		)
Total fair value	$	591.0

The following unaudited, pro forma results of operations are provided for the three and nine months ended September 30, 2016. Pro forma results are not provided for the three and nine months ended September 30, 2017, because the 2016 Permian Basin Acquisition occurred during the fourth quarter of 2016, and therefore, the results are included in QEP's results of operations for the three and nine months ended September 30, 2017. 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 periods 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 condensed consolidated results of operations for the three and nine months ended September 30, 2016, 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 and quantifying 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 2016 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						Nine Months Ended
	September 30, 2016						September 30, 2016
	Actual			Pro forma			Actual			Pro forma
	(in millions, except per share amounts)
Revenues	$	382.4		$	387.3		$	977.4		$	991.9
Net income (loss)	$	(50.9	)	$	(51.3	)	$	(1,111.7	)	$	(1,113.4	)
Earnings (loss) per common share
Basic	$	(0.21	)	$	(0.21	)	$	(5.15	)	$	(5.16	)
Diluted	$	(0.21	)	$	(0.21	)	$	(5.15	)	$	(5.16	)

Other Acquisitions

During the nine months ended September 30, 2017, QEP acquired various oil and gas properties, which primarily included proved and unproved leasehold acreage and additional surface acreage in the Permian Basin, for an aggregate purchase price of $94.5 million. In conjunction with these acquisitions, the Company recorded $5.3 million of goodwill. The goodwill is reported on the Condensed Consolidated Balance Sheets within "Other noncurrent assets".

During the nine months ended September 30, 2016, QEP acquired various oil and gas properties, which primarily included additional interests in QEP's operated wells and additional undeveloped leasehold acreage in the Permian and Williston basins, for an aggregate purchase price of $46.1 million, of which $39.9 million was cash and $6.2 million was non-cash related to the settlement of an accounts receivable balance. In conjunction with these acquisitions, the Company recorded $3.7 million of goodwill, which was subsequently impaired in 2016, and a $4.4 million bargain purchase gain. The bargain purchase gain is reported on the Condensed Consolidated Statement of Operations within "Interest and other income (expense)".

Pinedale Divestiture

In September 2017, QEP closed on its previously announced divestiture of its assets in Pinedale (the Pinedale Divestiture), for net cash proceeds (after purchase price adjustments) of $718.2 million, subject to post-closing purchase price adjustments, and recorded a pre-tax gain on sale of $178.8 million which was recorded within "Net gain (loss) from asset sales" on the Condensed Consolidated Statements of Operations. As part of the purchase and sale agreement, at the request of the buyer, QEP agreed to enter into derivative contracts covering a portion of Pinedale's future production. Those derivative contracts were novated to the buyer at closing. In addition, QEP agreed to reimburse the buyer for certain deficiency charges it incurs related to gas processing and NGL transportation and fractionation contracts, if any, between the effective date of the sale and December 31, 2019, in an aggregate amount not to exceed $45.0 million. The fair value of the deficiency charges was measured utilizing an internally developed cash flow model discounted at QEP's weighted average cost of debt. Given the unobservable nature of the inputs, the fair value calculation associated with the deficiency charges is considered Level 3 within the fair value hierarchy. As of September 30, 2017, the liability associated with estimated future payments for this commitment was $35.0 million, of which $28.0 million is reported on the Condensed Consolidated Balance Sheets within "Accounts payable and accrued expenses" and $7.0 million is reported on the Condensed Consolidated Balance Sheets within "Other long-term liabilities".

QEP accounted for revenues and expenses related to Pinedale, including the pre-tax gain on sale of $178.8 million, during the three and nine months ended September 30, 2017 and 2016, as income from continuing operations on the Condensed Consolidated Statements of Operations because the sale of the Pinedale assets did not cause a strategic shift for the Company and as a result, did not qualify as discontinued operations under ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The Pinedale Divestiture did, however, represent the sale of an individually significant component. For the three and nine months ended September 30, 2017, QEP recorded net income before income taxes related to Pinedale, prior to the divestiture, of $208.2 million and $251.2 million, respectively, which both include the pre-tax gain on sale of $178.8 million. For the three and nine months ended September 30, 2016, QEP recorded net income before income taxes related to Pinedale of $19.2 million and a net loss before income taxes of $1,177.0 million, respectively. The net loss before income taxes was primarily due to an impairment on proved properties of $1,164.0 million recognized in 2016 as a result of a decrease in expected future gas prices.

As a part of the Pinedale Divestiture, QEP expects to incur restructuring costs of approximately $0.8 million, of which approximately $0.5 million is related to one-time termination benefits and approximately $0.3 million is related to the relocation of certain employees. During the three and nine months ended September 30, 2017, restructuring costs of $0.5 million were incurred related to the Pinedale Divestiture, all of which were related to one-time termination benefits and will be paid in the fourth quarter of 2017. The Company expects to incur an additional $0.3 million of restructuring costs related to the relocation of certain employees within the next twelve months. These restructuring costs were recorded within "Net gain (loss) from asset sales" on the Condensed Consolidated Statement of Operations.

Other Divestitures

In addition to the Pinedale Divestiture, during the nine months ended September 30, 2017, QEP received proceeds of $69.7 million and recorded a pre-tax gain on sale of $26.4 million, primarily related to the divestiture of certain non-core properties in the Other Northern area.

During the nine months ended September 30, 2016, QEP received proceeds of $28.9 million and recorded a pre-tax gain on sale of $5.0 million, primarily related to the divestiture of certain non-core properties in the Other Southern area.

The gains and losses were recorded within "Net gain (loss) from asset sales" on the Condensed Consolidated Statements of Operations.