NATURAL GAS AND OIL PROPERTIES

6 Months Ended

Jun. 30, 2020

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

The Company utilizes the full cost method of accounting for costs related to the exploration, development and acquisition of natural gas and oil properties. Under this method, all such costs (productive and nonproductive), including salaries, benefits and other internal costs directly attributable to these activities, are capitalized on a country-by-country basis and amortized over the estimated lives of the properties using the units-of-production method. These capitalized costs are subject to a ceiling test that limits such pooled costs, net of applicable deferred taxes, to the aggregate of the present value of future net revenues attributable to proved natural gas, oil and NGL reserves discounted at 10% (standardized measure). Any costs in excess of the ceiling are written off as a non-cash expense. The expense may not be reversed in future periods, even though higher natural gas, oil and NGL prices may subsequently increase the ceiling. Companies using the full cost method are required to use the average quoted price from the first day of each month from the previous 12 months, including the impact of derivatives designated for hedge accounting, to calculate the ceiling value of their reserves. The Company had no hedge positions that were designated for hedge accounting as of June 30, 2020. Prices used to calculate the ceiling value of reserves were as follows:


	June 30, 2020		June 30, 2019
Natural gas (per MMBtu)	$	2.07	$	3.02
Oil (per Bbl)	$	47.17	$	61.39
NGLs (per Bbl)	$	8.87	$	16.35

Using the average quoted prices above, adjusted for market differentials, the Company’s net book value of its United States natural gas and oil properties exceeded the ceiling by $650 million at June 30, 2020, resulting in a non-cash ceiling test impairment. In the first quarter of 2020, the Company’s net book value of its United States natural gas and oil properties exceeded the ceiling by approximately $1.48 billion and resulted in a non-cash ceiling test impairment. Decreases in market prices as well as changes in production rates, levels of reserves, evaluation of costs excluded from amortization, future development costs and production costs could result in future ceiling test impairments. Given the decline in commodity prices in late 2019 and the first half of 2020, the Company expects that an additional non-cash impairment of its assets will likely occur in the third quarter of 2020 and perhaps later.

For the three and six months ended June 30, 2020, the Company recognized a $5 million impairment related to other non-core assets not included in natural gas and oil properties.

The Company’s net book value of its United States natural gas and oil properties did not exceed the ceiling amount at June 30, 2019, and the Company had no derivative positions that were designated for hedge accounting as of June 30, 2019. In June 2019, the Company sold non-core acreage for $25 million. There was no production or proved reserves associated with this acreage.