5. OIL AND NATURAL GAS PROPERTIES

Oil and natural gas properties as of December 31, 2013 and 2012 consisted of the following:

	December 31,

	2013			2012
	(In thousands)
Subject to depletion	$	4,960,467		$	2,669,245


Not subject to depletion:
Exploration and extension wells in progress		109,279			67,992
Other capital costs:
Incurred in 2013		750,960			—
Incurred in 2012		1,167,805			2,258,606
Incurred in 2011		—			—
Incurred in 2010 and prior		—			—


Total not subject to depletion		2,028,044			2,326,598


Gross oil and natural gas properties		6,988,511			4,995,843
Less accumulated depletion		(2,189,515	)		(588,207	)


Net oil and natural gas properties	$	4,798,996		$	4,407,636

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.

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. During the three months ended September 30, 2013, the Company transferred $655.7 million of unevaluated property costs to the full cost pool primarily related to Woodbine assets in East Texas where capital has been reallocated to El Halcón, and certain Utica / Point Pleasant assets in Northwest Pennsylvania related to non-economical drilling results obtained in the third quarter of 2013.

Investments in unevaluated oil and natural gas properties and exploration and development projects for which depletion expense is not currently recognized, and for which exploration or development activities are in progress, qualify for interest capitalization. The capitalized interest is determined by multiplying the Company's weighted-average borrowing cost on debt by the average amount of qualifying costs incurred that are excluded from the full cost pool; however, the amount of capitalized interest cannot exceed the amount of gross interest expense incurred in any given period. The capitalized interest amounts are recorded as additions to unevaluated oil and natural gas properties on consolidated balance sheets. As the costs excluded are transferred to the full cost pool, the associated capitalized interest is also transferred to the full cost pool. For the year ended December 31, 2013 and 2012, the Company capitalized interest costs of $201.5 million and $53.5 million, respectively.

The ceiling test value of the Company's reserves was calculated based on the following prices:

	West Texas Intermediate (per barrel)*⁽¹⁾⁽²⁾*		Henry Hub (per MMBtu)*⁽³⁾*

December 31, 2013	$	96.94	$	3.670
December 31, 2012	$	94.71	$	2.757
December 31, 2011	$	96.19	$	4.12

(1): First day average of the 12-months ended December 31, 2013 and 2012 spot price, adjusted by lease or field for quality, transportation fees and regional price differentials.
(2): First day average of the 12-months ended December 31, 2011 posted price, adjusted by lease or field for quality, transportation fees and regional price differentials.
(3): First day average of the 12-months ended price, adjusted by lease or field for quality, transportation fees and regional price differentials.

The Company's net book value of oil and natural gas properties at September 30, 2013 and December 31, 2013 exceeded the ceiling amount. The Company recorded a full cost ceiling test impairment before income taxes of $1.1 billion ($727.2 million after taxes) for the year ended December 31, 2013. The combined impact of less favorable oil price differentials adversely affecting proved reserve values and the non-routine transfers of unevaluated Woodbine and Utica / Point Pleasant properties to the full cost pool contributed to the ceiling impairment. At December 31, 2012 and 2011, the Company's net book value of oil and natural gas properties did not exceed the respective ceiling amounts. The Company recorded the full cost ceiling test impairment in "Full cost ceiling impairment" in the Company's consolidated statements of operations and in "Accumulated depletion" in the Company's consolidated balance sheets.

Changes in production rates, levels of reserves, future development costs, transfers of unevaluated properties, and other factors will determine the Company's actual ceiling test calculation and impairment analyses in future periods.