
2.	Basis of Presentation

Comparability of Financial Statements to Prior Periods

As described in further detail in Note 4 below, we have adopted and applied the relevant guidance provided in accounting principles generally accepted in the United States of America (“GAAP”) with respect to the accounting and financial statement disclosures for entities that have emerged from bankruptcy proceedings (“Fresh Start Accounting”). Accordingly, our Consolidated Financial Statements and Notes after September 12, 2016, are not comparable to the Consolidated Financial Statements and Notes through that date. To facilitate our financial statement presentations, we refer to the reorganized company in these Consolidated Financial Statements and Notes as the “Successor” for periods subsequent to September 12, 2016, and the “Predecessor” for periods prior to September 13, 2016. Furthermore, our Consolidated Financial Statements and Notes have been presented with a “black line” division to delineate the lack of comparability between the Predecessor and Successor. In addition, we have adopted the full cost method of accounting for our oil and gas properties effective with our adoption of Fresh Start Accounting. Accordingly, our results of operations and financial position for the Successor periods will be substantially different from our historic trends.

We have applied the relevant guidance provided in GAAP with respect to the accounting and financial statement disclosures for entities that have filed petitions with the bankruptcy court and expect to reorganize as going concerns in preparing our Consolidated Financial Statements and Notes through the period ended September 12, 2016, or Predecessor periods. That guidance requires that, for periods subsequent to our bankruptcy filing on May 12, 2016, or post-petition periods, certain transactions and events that were directly related to our reorganization be distinguished from our normal business operations. Accordingly, certain revenues, expenses, realized gains and losses and provisions that were realized or incurred in connection with the bankruptcy proceedings have been included in “Reorganization items, net” in our Consolidated Statement of Operations for the period ended September 12, 2016. In addition, certain liabilities and other obligations incurred prior to May 12, 2016, or pre-petition periods, have been classified in “Liabilities subject to compromise” on our Predecessor Consolidated Balance Sheet through September 12, 2016. Further detail for our “Reorganization items, net” and “Liabilities subject to compromise” are provided in Note 4 below.

Going Concern Presumption

Our Consolidated Financial Statements for the Successor periods have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business.

Subsequent Events

Management has evaluated all of our activities through the issuance date of our Consolidated Financial Statements and has concluded that, with the exception of an oil and gas asset acquisition described in Note 5, no subsequent events have occurred that would require recognition in our Consolidated Financial Statements or disclosure in the Notes thereto.

Recently Issued Accounting Pronouncements Pending Adoption

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017–07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017–07”) which provides guidance to improve the reporting of net benefit cost in financial statements. The guidance requires employers to disaggregate the service cost component from the other components of net benefit cost. The service cost component of net periodic benefit cost shall be reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period, except for amounts capitalized. All other components of net benefit cost shall be presented outside of a subtotal for income from operations. The line item used to present the components other than the service cost shall be disclosed if the other components are not presented in a separate line item or items. ASU 2017–07 is effective January 1, 2018 and is required to be applied retrospectively. ASU 2017–07 will be applicable to our legacy retiree benefit plans which cover a limited population of former employees. There is no service cost associated with these plans as they are not applicable to current employees, but rather interest and other costs associated with the legacy obligations. Upon the adoption of ASU 2017–07, the entirety of the expense associated with these plans will be presented as a component of the “Other income (expense)” caption in our Consolidated Statement of Operations. These costs are currently recognized as a component of “General and administrative” expenses. The total cost associated with these plans is generally less than $0.1 million on an annual basis and is therefore not material. We have adopted ASU 2017–07 effective January 2018.

In June 2016, the FASB issued ASU 2016–13, Measurement of Credit Losses on Financial Instruments (“ASU 2016–13”), which changes the recognition model for the impairment of financial instruments, including accounts receivable, loans and held-to-maturity debt securities, among others. ASU 2016–13 is required to be adopted using the modified retrospective method by January 1, 2020, with early adoption permitted for fiscal periods beginning after December 15, 2018. In contrast to current guidance, which considers current information and events and utilizes a probable threshold, (an “incurred loss” model), ASU 2016–13 mandates an “expected loss” model. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the contractual life, (iii) considers past events, current conditions and reasonably supported forecasts and (iv) has no recognition threshold. ASU 2016–13 will have applicability to our accounts receivable portfolio, particularly those receivables attributable to our joint interest partners which have a higher credit risk than those associated with our traditional customer receivables. At this time, we do not anticipate that the adoption of ASU 2016–13 will have a significant impact on our Consolidated Financial Statements and related disclosures; however, we are continuing to evaluate the requirements and the period for which we will adopt the standard as well as monitoring developments regarding ASU 2016–13 that are unique to our industry.

In February 2016, the FASB issued ASU 2016–02, Leases (“ASU 2016–02”), which will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. ASU 2016–02 also will require disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases. The effective date of ASU 2016–02 is January 1, 2019, with early adoption permitted. We believe that ASU 2016–02 will likely be applicable to our oil and natural gas gathering commitment arrangements as described in Note 15, our existing leases for office facilities and certain office equipment, land easements and similar arrangements for rights-of-way and potentially to certain drilling rig and completion contracts with terms in excess of twelve months to the extent we may have such contracts in the future. Our oil and natural gas gathering arrangements are fairly complex and involve multiple elements that could be construed as leases. Accordingly, we are continuing to evaluate the effect that ASU 2016–02 will have on our Consolidated Financial Statements and related disclosures as well as the period for which we will adopt the standard; however, at this time, we believe that we will likely adopt ASU 2016–02 in 2019. We are also continuing to monitor developments regarding ASU 2016–02 that are unique to our industry.

In May 2014, the FASB issued ASU 2014–09, Revenues from Contracts with Customers (“ASU 2014–09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014–09 will replace most existing revenue recognition guidance in GAAP when it becomes effective on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method upon adoption. While traditional commodity sales transactions, property conveyances and joint interest arrangements in the oil and gas industry are not expected to be significantly impacted by ASU 2014–09, the terms of the individual commodity purchase, joint operating agreements and other contracts underlying these types of transactions will determine the appropriate recognition, measurement and disclosure once ASU 2014–09 has been adopted. Also, to the extent applicable, participation in certain of these transactions as either a principal or agent can impact the ultimate accounting and presentation.

We have adopted ASU 2014–09 effective January 2018 using the cumulative effect transition method. We will record a cumulative-effect charge to our beginning balance of retained earnings for $2.6 million representing the net receivables for producer imbalances as December 31, 2017, the accounting for which has been modified under ASU 2014–09. Effective January 2018, we will discontinue utilization of the “entitlements” method for producer imbalances and will begin accounting for such transactions utilizing the “sales” method. We do not anticipate this change to have a material impact going forward. In addition, we will change the presentation of our NGL product revenues from a “gross” to a “net” basis, that is revenues, net of processing costs, as we have determined that we are the agent with respect to the sale of these products to the ultimate customers. Accordingly, the applicable processing costs associated with these revenues will no longer be presented as a component of “Gathering, processing and transportation” expense on our Consolidated Statement of Operations. In summary, with the exception of the presentation of NGL revenues and more expansive disclosures, we do not anticipate a material impact attributable to the adoption of ASU 2014–09.