Acquisitions and Divestitures

Acquisitions

Undeveloped Eagle Ford Acreage

In August 2014, we acquired undeveloped acreage in the Eagle Ford in Lavaca County, Texas for a purchase price of $45.6 million, of which $34.9 million was paid at closing and the balance of $10.7 million will be paid over three years as a drilling carry.

Eagle Ford Acquisition

On April 24, 2013 (the “Acquisition Date”), we acquired producing properties and undeveloped leasehold interests in the Eagle Ford (the “Eagle Ford Acquisition”). The Eagle Ford Acquisition was originally valued at $401 million with an effective date of January 1, 2013 (the “Effective Date”). On the Acquisition Date, we paid approximately $380 million in cash, including approximately $19 million of initial purchase price adjustments related to the period from the Effective Date to the closing, and issued to the seller 10 million shares of our common stock with a fair value of $4.23 per share. Shortly after the closing, certain of our joint interest partners exercised preferential rights related to the Eagle Ford Acquisition. We received approximately $21 million from the exercise of these rights, which was recorded as a decrease to the purchase price for the Eagle Ford Acquisition. Subsequent to the Acquisition Date and through December 31, 2013, we paid a total of $22.5 million, net, to settle working capital adjustments assumed in the Eagle Ford Acquisition. We were involved in an arbitration with the seller related to disputes we had regarding contractual adjustments to the purchase price for the Eagle Ford Acquisition and suspense funds that we believed the seller was obligated to transfer to us. The arbitration was settled in 2014 based on the arbitrator’s determination and the seller paid us a total of $35.1 million, including purchase price adjustments, revenue suspense funds due to partners and royalty owners and interest ($1.3 million) on the funds since the Acquisition Date.

We incurred $2.6 million of transaction costs associated with the Eagle Ford Acquisition, including advisory, legal, due diligence and other professional fees in 2013. We incurred $0.6 million of professional fees associated with the arbitration proceedings in 2014. These costs, as well as fees that we paid to the seller for certain transition services, have been included in the General and administrative caption on our Consolidated Statements of Operations.

We accounted for the Eagle Ford Acquisition by applying the acquisition method of accounting as of the Acquisition Date. The following table represents the fair values assigned to the net assets acquired as of the Acquisition Date and the consideration paid:



Assets
Oil and gas properties – proved	$	267,688
Oil and gas properties – unproved	119,709
Accounts receivable, net	107,345
Other current assets	2,068
	496,810
Liabilities
Accounts payable and accrued expenses	94,771
Other liabilities	1,500
	96,271
Net assets acquired	$	400,539

Cash, net of amounts received for preferential rights	$	358,239
Fair value of the Shares issued to seller	42,300
Consideration paid	$	400,539

The fair values of the acquired net assets were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future cash flows and (v) a market-based weighted-average cost of capital. Because many of these inputs are not observable, we have classified the initial fair value estimates as Level 3 inputs as that term is defined in U.S. GAAP.

The results of operations attributable to the Eagle Ford Acquisition have been included in our Consolidated Financial Statements from the Acquisition Date. The following table presents unaudited summary pro forma financial information for the year ended December 31, 2013 assuming the Eagle Ford Acquisition and the related financing occurred as of January 1, 2012. The pro forma financial information does not purport to represent what our results of operations would have been if the Eagle Ford Acquisition had occurred as of this date or the results of operations for any future periods.



Total revenues	$	457,811
Net loss attributable to common shareholders	$	(148,272	)
Loss per share – basic and diluted	$	(2.27	)

Divestitures

South Texas Properties

In October 2015, we sold certain non-core Eagle Ford properties for $12.5 million net of transaction costs and customary closing adjustments. We recognized a loss of $9.5 million on this transaction.

East Texas Properties

In August 2015, we sold our Cotton Valley and Haynesville Shale assets in East Texas and received cash proceeds of approximately $73 million, net of transaction costs and customary closing adjustments. The effective date of the sale was May 1, 2015 and we recognized a gain of approximately $43 million. The carrying value of the net assets disposed in this transaction was $29.5 million, including oil and gas properties and other assets of $33.3 million, net of related asset retirement obligations (“AROs”) of $3.8 million. The net pre-tax operating income (loss), excluding the gain on sale and impairment charges, attributable to the East Texas assets was $1.3 million, $(27.5) million and $(22.2) million for the years ended December 31, 2015, 2014 and 2013, respectively. The net proceeds from this transaction were used to pay down a portion of our outstanding borrowings under the Revolver.

Oil Gathering System Construction Rights

In July 2014, we sold the rights to construct a crude oil gathering and intermediate transportation system in South Texas to Republic Midstream, LLC (“Republic”) for proceeds of $147.1 million, net of transaction costs. Concurrent with the sale, we entered into long-term agreements with Republic to provide us gathering and intermediate transportation services for a substantial portion of our future South Texas crude oil and condensate production. We realized a gain of $147.1 million, of which $63.0 million was recognized upon the closing of the transaction and the remaining $84.1 million was deferred and will be recognized over a twenty-five year period beginning after the system has been constructed and is operational, which is currently expected in the first half of 2016. In September 2015, the gathering agreement with Republic was amended to reduce the number of wells initially required to be connected to the pipeline system, provide for alternative transportation in areas that will not be served by the pipeline and also reduce the gathering fees. As a result of the amendment, we recognized $8.4 million of deferred gain in September 2015. As of December 31, 2015, $2.2 million of the deferred gain is included as a component of Accounts payable and accrued expenses and $73.6 million, representing the noncurrent portion, is included as a component of Other liabilities on our Consolidated Balance Sheets.

Mississippi Properties

In July 2014, we sold our Selma Chalk assets in Mississippi for proceeds of $67.9 million, net of transaction costs and customary closing adjustments. An impairment charge of $117.9 million was recognized in the second quarter of 2014 with respect to these assets.

Natural Gas Gathering and Gas Lift Assets

In January 2014, we sold our natural gas gathering and gas lift assets in South Texas to American Midstream Partners, LP (“AMID”) for proceeds of approximately $96 million, net of transaction costs. Concurrent with the sale, we entered into a long-term agreement with AMID to provide us natural gas gathering, compression and gas lift services for a substantial portion of our current and future South Texas natural gas production. We realized a gain of $67.3 million, of which $56.7 million was recognized upon the closing of the transaction and the remainder was deferred and is being amortized over a twenty-five year period. We amortized $0.4 million of the deferred gain in both 2015 and 2014. As of December 31, 2015, $0.4 million of the remaining deferred gain is included as a component of Accounts payable and accrued expenses and $9.4 million, representing the noncurrent portion, is included as a component of Other liabilities on our Consolidated Balance Sheets.

Other Assets

During 2014, we also received net proceeds of $2.9 million and recognized net gains of $0.2 million from the sale of various non-core oil and gas properties and tubular inventory and well materials. During 2013, payments of post-closing adjustments attributable to sales of properties from prior years were partially offset by net proceeds from sales of individually insignificant oil and gas properties and tubular inventory and well materials, resulting in net payments of $0.1 million and a recognized loss on the sale of assets of $0.3 million.