Note 2 – Revenue

Adoption of ASC Topic 606, Revenue from Contracts with Customers

On January 1, 2018, QEP adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective approach, which was applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018, are presented in accordance with ASC Topic 606, while prior period amounts are reported in accordance with ASC Topic 605, Revenue Recognition.

In accordance with ASC Topic 606, QEP now records transportation and processing costs that are incurred after control of its product has transferred to the customer as a reduction of "Oil and condensate, gas and NGL sales" on the Condensed Consolidated Statements of Operations. Prior to the adoption of ASC Topic 606, these transportation and processing costs were recorded as an expense within "Transportation and processing costs" on the Condensed Consolidated Statements of Operations. There was no impact to net income (loss) or opening retained earnings as a result of adopting ASC Topic 606.

The following table presents the impact to the Condensed Consolidated Statements of Operations as a result of adopting ASC Topic 606.



	Three Months Ended								Nine Months Ended
	September 30, 2018								September 30, 2018
	As Reported			ASC Topic 606 Adjustments		As Adjusted⁽¹⁾			As Reported			ASC Topic 606 Adjustments		As Adjusted⁽¹⁾
REVENUES	(in millions, except per share amounts)
Oil and condensate, gas and NGL sales	$	544.0		$	15.8	$	559.8		$	1,474.1		$	40.9	$	1,515.0
Other revenue	3.8			—		3.8			11.8			—		11.8
Purchased oil and gas sales	13.0			—		13.0			36.2			—		36.2
Total Revenues	560.8			15.8		576.6			1,522.1			40.9		1,563.0
OPERATING EXPENSES
Purchased oil and gas expense	13.3			—		13.3			38.6			—		38.6
Lease operating expense	64.6			—		64.6			203.6			—		203.6
Transportation and processing costs	28.0			15.8		43.8			93.2			40.9		134.1
Gathering and other expense	4.6			—		4.6			10.8			—		10.8
General and administrative	48.3			—		48.3			164.2			—		164.2
Production and property taxes	37.4			—		37.4			103.9			—		103.9
Depreciation, depletion and amortization	234.9			—		234.9			673.6			—		673.6
Exploration expenses	—			—		—			0.1			—		0.1
Impairment	—			—		—			404.4			—		404.4
Total Operating Expenses	431.1			15.8		446.9			1,692.4			40.9		1,733.3
Net gain (loss) from asset sales, inclusive of restructuring costs	27.1			—		27.1			26.7			—		26.7
OPERATING INCOME (LOSS)	156.8			—		156.8			(143.6		)	—		(143.6		)
Realized and unrealized gains (losses) on derivative contracts (Note 7)	(108.0		)	—		(108.0		)	(240.3		)	—		(240.3		)
Interest and other income (expense)	(0.3		)	—		(0.3		)	(4.1		)	—		(4.1		)
Interest expense	(38.7		)	—		(38.7		)	(111.9		)	—		(111.9		)
INCOME (LOSS) BEFORE INCOME TAXES	9.8			—		9.8			(499.9		)	—		(499.9		)
Income tax (provision) benefit	(2.5		)	—		(2.5		)	117.6			—		117.6
NET INCOME (LOSS)	$	7.3		$	—	$	7.3		$	(382.3	)	$	—	$	(382.3	)

Earnings (loss) per common share
Basic	$	0.03		$	—	$	0.03		$	(1.60	)	$	—	$	(1.60	)
Diluted	$	0.03		$	—	$	0.03		$	(1.60	)	$	—	$	(1.60	)

Weighted-average common shares outstanding
Used in basic calculation	236.9			—		236.9			238.3			—		238.3
Used in diluted calculation	237.0			—		237.0			238.3			—		238.3

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⁽¹⁾	This column excludes the impact of adopting ASC Topic 606 and is consistent with the presentation prior to January 1, 2018.

Revenue Recognition

QEP recognizes revenue from the sales of oil and condensate, gas and NGL in the period that the performance obligations are satisfied. QEP's performance obligations are satisfied when the customer obtains control of product, when we have no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sales of oil and condensate, gas and NGL are made under contracts with customers, which typically include consideration that is based on pricing tied to local indices and volumes delivered in the current month. Reported revenues include estimates for the two most recent months using published commodity price indexes and volumes supplied by field operators. Performance obligations under our contracts with customers are typically satisfied at a point in time through monthly delivery of oil and condensate, gas and/or NGL. Our contracts with customers typically require payment for oil and condensate, gas and NGL sales within 30 days following the calendar month of delivery.

QEP's oil is typically sold at specific delivery points under contract terms that are common in our industry. QEP's gas and NGL are also sold under contract types that are common in our industry; however, under these contracts, the gas and its components, including NGL, may be sold to a single purchaser or the residue gas and NGL may be sold to separate purchasers. Regardless of the contract type, the terms of these contracts compensate the Company for the value of the residue gas and NGL constituent components at market prices for each product. QEP also purchases and resells oil and gas primarily to mitigate losses on unutilized capacity related to firm transportation commitments and storage activities. QEP recognizes revenue from these resale activities in the period that the performance obligations are satisfied. A wellhead imbalance liability is recorded to the extent that QEP has sold volumes in excess of its share of remaining reserves in an underlying property.

The following tables present our revenues that are disaggregated by revenue source and by geographic area. Transportation and processing costs in the following tables are not all of the transportation and processing costs that the Company incurs, only the expenses that are netted against revenues pursuant to ASC Topic 606.



	Oil and condensate sales		Gas sales		NGL sales		Transportation and processing costs included in revenue			Oil and condensate, gas and NGL sales, as reported
	(in millions)
	Three Months Ended September 30, 2018
Northern Region
Williston Basin	$	203.4	$	12.0	$	19.2	$	(12.3	)	$	222.3
Uinta Basin	7.3		6.8		1.4		—			15.5
Other Northern	1.1		0.5		0.1		—			1.7
Southern Region
Permian Basin	204.0		5.4		21.3		(3.5		)	227.2
Haynesville/Cotton Valley	0.2		76.9		—		—			77.1
Other Southern	0.1		0.1		—		—			0.2
Total oil and condensate, gas and NGL sales	$	416.1	$	101.7	$	42.0	$	(15.8	)	$	544.0

	Three Months Ended September 30, 2017⁽¹⁾
Northern Region
Williston Basin	$	125.7	$	9.5	$	13.0	$	—		$	148.2
Pinedale	5.2		43.0		10.1		—			58.3
Uinta Basin	7.5		12.2		1.6		—			21.3
Other Northern	1.2		4.2		0.1		—			5.5
Southern Region
Permian Basin	78.1		4.5		7.3		—			89.9
Haynesville/Cotton Valley	0.3		57.2		0.1		—			57.6
Other Southern	—		0.1		—		—			0.1
Total oil and condensate, gas and NGL sales	$	218.0	$	130.7	$	32.2	$	—		$	380.9

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⁽¹⁾	Prior period amounts have not been adjusted under the modified retrospective method.



	Oil and condensate sales			Gas sales		NGL sales		Transportation and processing costs included in revenue			Oil and condensate, gas and NGL sales, as reported
	(in millions)
	Nine Months Ended September 30, 2018
Northern Region
Williston Basin	$	571.5		$	30.2	$	45.7	$	(32.9	)	$	614.5
Uinta Basin	25.2			24.8		4.8		—			54.8
Other Northern	3.9			1.7		—		—			5.6
Southern Region
Permian Basin	524.1			13.2		37.7		(8.0		)	567.0
Haynesville/Cotton Valley	0.8			231.2		—		—			232.0
Other Southern	(0.2		)	0.4		—		—			0.2
Total oil and condensate, gas and NGL sales	$	1,125.3		$	301.5	$	88.2	$	(40.9	)	$	1,474.1

	Nine Months Ended September 30, 2017⁽¹⁾
Northern Region
Williston Basin	$	416.5		$	32.5	$	34.8	$	—		$	483.8
Pinedale	18.0			154.8		30.1		—			202.9
Uinta Basin	21.8			39.1		4.3		—			65.2
Other Northern	4.0			15.0		0.3		—			19.3
Southern Region
Permian Basin	194.3			11.3		14.2		—			219.8
Haynesville/Cotton Valley	0.9			146.4		0.3		—			147.6
Other Southern	0.2			0.3		—		—			0.5
Total oil and condensate, gas and NGL sales	$	655.7		$	399.4	$	84.0	$	—		$	1,139.1

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⁽¹⁾	Prior period amounts have not been adjusted under the modified retrospective method.