Oil and Gas Producing Activities (Unaudited)

Our wholly owned subsidiary, AREC, participated in the exploration and development of domestic crude oil and natural gas properties primarily in the Permian Basin of West Texas and the Haynesville Shale. AREC’s offices were maintained in Houston, and at December 31, 2016, we held an interest in 470 producing wells of which we operated six. As discussed further in Note 3, AREC was deconsolidated effective with its bankruptcy filing in April 2017, and we recorded our investment in AREC under the cost method of accounting in April 2017. During the third quarter of 2017, AREC closed on the sale of substantially all of its assets. As a result of the sales of these assets, we no longer have an ownership interest in any crude oil and natural gas producing activities. In the disclosures and tables below, amounts for 2017 are for the period from January 1, 2017 through April 30, 2017, as a result of the deconsolidation of AREC due to its bankruptcy filing.

Crude Oil and Natural Gas Producing Activities

Total costs incurred in crude oil and natural gas exploration and development activities, all within the U.S., were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015
Property acquisition costs:
Unproved	$	4	$	32	$	348
Proved	—		—		—
Exploration costs:
Expensed	5		291		1,667
Capitalized	—		—		—
Development costs	1,815		—		370
Total costs incurred	$	1,824	$	323	$	2,385

The aggregate capitalized costs relative to crude oil and natural gas producing activities were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Unproved crude oil and natural gas properties	$	—	$	—
Proved crude oil and natural gas properties	—		62,784
Subtotal	—		62,784
Accumulated depreciation, depletion and amortization	—		(56,426		)
Net capitalized cost	$	—	$	6,358

Estimated Crude Oil and Natural Gas Reserves

The following information regarding estimates of our proved crude oil and natural gas reserves, substantially all located onshore in Texas and Louisiana, was based on reports prepared on our behalf by our independent petroleum engineers. Because crude oil and natural gas reserve estimates are inherently imprecise and require extensive judgments of reservoir engineering data, they are generally less precise than estimates made in conjunction with financial disclosures. The revisions of previous estimates as reflected in the table below result from changes in commodity pricing assumptions and from more precise engineering calculations based upon additional production histories and price changes. As discussed previously, AREC was deconsolidated effective with its bankruptcy filing in April 2017, and we recorded our investment in AREC under the cost method of accounting in April 2017. During the third quarter of 2017, AREC closed on the sale of substantially all of its assets. As a result of the sales of these assets, we no longer have an ownership interested in any crude oil and natural gas producing activities. In the tables below, amounts for 2017 are for the period from January 1, 2017 through April 30, 2017, as a result of the deconsolidation of AREC due to its bankruptcy filing.

Proved developed and undeveloped reserves were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017				2016				2015
	Natural		Crude		Natural		Crude		Natural		Crude
	Gas		Oil		Gas		Oil		Gas		Oil
	(Mcf)		(Bbls)		(Mcf)		(Bbls)		(Mcf)		(Bbls)
Total proved reserves:
Beginning of year	4,214		187		4,835		226		5,611		318
Revisions of previous estimates	—		—		65		24		27		(2	)
Crude oil and natural gas reserves sold	(4,067	)	(170	)	(175	)	(4	)	—		(3	)
Extensions, discoveries and other
reserve additions	42		6		151		18		86		13
Production	(189	)	(23	)	(662	)	(77	)	(889	)	(100	)
End of year	—		—		4,214		187		4,835		226

The components of our previously owned proved crude oil and natural gas reserves, all within the U.S., were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015
	Natural	Crude	Natural	Crude	Natural	Crude
	Gas	Oil	Gas	Oil	Gas	Oil
	(Mcf)	(Bbls)	(Mcf)	(Bbls)	(Mcf)	(Bbls)

Proved developed reserves	—	—	4,214	187	4,813	223
Proved undeveloped reserves	—	—	—	—	22	3
Total proved reserves	—	—	4,214	187	4,835	226

We had developed internal policies and controls for estimating and recording crude oil and natural gas reserve data. The estimation and recording of proved reserves is required to be in compliance with SEC definitions and guidance. We assigned responsibility for compliance in reserve bookings to the office of President of AREC. No portion of this individual’s compensation was directly dependent on the quantity of reserves booked. Reserve estimates are required to be made by qualified reserve estimators, as defined by Society of Petroleum Engineers’ Standards.

We employed a third party petroleum consultant, Ryder Scott Company, to prepare our crude oil and natural gas reserve data estimates as of December 31, 2016 and 2015. The firm of Ryder Scott is well recognized within the industry for more than 50 years. As prescribed by the SEC, such proved reserves were estimated using 12-month average crude oil and natural gas prices, based on the first-day-of-the-month price for each month in the period, and year-end production and development costs for each of the years presented, all without escalation.

The process of estimating crude oil and natural gas reserves is complex and requires significant judgment. Uncertainties are inherent in estimating quantities of proved reserves, including many factors beyond the estimator’s control. Reserve engineering is a subjective process of estimating subsurface accumulations of crude oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and the interpretation thereof. As a result, assessments by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Accordingly, crude oil and natural gas quantities ultimately recovered will vary from reserve estimates.

Standardized Measure of Discounted Future Net Cash Flows from Crude Oil and Natural Gas Operations and Changes Therein

The standardized measure of discounted future net cash flows was determined based on the economic conditions in effect at the end of the years presented, except in those instances where fixed and determinable gas price escalations were included in contracts. The disclosures below do not purport to present the fair market value of our previously owned crude oil and natural gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money and risks inherent in reserve estimates. The standardized measure of discounted future net cash flows was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016			2015

Future gross revenues	$	—	$	17,938		$	23,040
Future costs:
Lease operating expenses	—		(12,421		)	(14,524		)
Development costs	—		(38		)	(103		)
Future net cash flows before income taxes	—		5,479			8,413
Discount at 10% per annum	—		(2,002		)	(2,987		)
Discounted future net cash flows before income taxes	—		3,477			5,426
Future income taxes, net of discount at 10% per annum	—		(1,217		)	(1,899		)
Standardized measure of discounted future net cash flows	$	—	$	2,260		$	3,527

The estimated value of crude oil and natural gas reserves and future net revenues derived therefrom are highly dependent upon crude oil and natural gas commodity price assumptions. For such estimates, our independent petroleum engineers assumed market prices as presented in the table below:



	Year Ended December 31,
	2017		2016		2015
Market price:
Crude oil per barrel	$	—	$	38.34	$	45.83
Natural gas per thousand cubic feet (Mcf)	$	—	$	2.56	$	2.62

These prices were based on the unweighted arithmetic average of the prices in effect on the first day of the month for each month of the respective twelve month periods as required by SEC regulations. The prices reported in the reserve disclosures for natural gas included the value of associated natural gas liquids. Crude oil and natural gas reserve values and future net cash flow estimates are very sensitive to pricing assumptions and will vary accordingly.

The effect of income taxes and discounting on the standardized measure of discounted future net cash flows was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016			2015

Future net cash flows before income taxes	$	—	$	5,479		$	8,413
Future income taxes	—		(1,918		)	(2,945		)
Future net cash flows	—		3,561			5,468
Discount at 10% per annum	—		(1,301		)	(1,941		)
Standardized measure of discounted future net cash flows	$	—	$	2,260		$	3,527

The principal sources of changes in the standardized measure of discounted future net cash flows were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Beginning of year	$	2,260		$	3,527		$	15,744
Sale of crude oil and natural gas reserves	(2,732		)	(350		)	(54		)
Net change in prices and production costs	—			(1,391		)	(17,622		)
New field discoveries and extensions, net of future production costs	94			275			292
Sales of crude oil and natural gas produced, net of production costs	(476		)	87			1,038
Net change due to revisions in quantity estimates	—			181			38
Accretion of discount	130			194			1,116
Production rate changes and other	(493		)	(945		)	(3,603		)
Net change in income taxes	1,217			682			6,578
End of year	$	—		$	2,260		$	3,527

Results of Operations for Crude Oil and Natural Gas Producing Activities

The results of crude oil and natural gas producing activities, excluding corporate overhead and interest costs, were as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017			2016			2015

Revenues	$	1,427		$	3,410		$	5,063
Costs and expenses:
Production	(951		)	(3,337		)	(7,022		)
Producing property impairment	—			(30		)	(10,324		)
Exploration	—			—			(1,667		)
Depreciation, depletion and amortization	(423		)	(1,546		)	(5,066		)
Operating loss before income taxes	53			(1,503		)	(19,016		)
Income tax benefit (expense)	(19		)	526			6,656
Operating earnings (losses)	$	34		$	(977	)	$	(12,360	)