5. Acquisitions and Divestitures

Acquisitions

Hunt Acquisition

In December 2017, we entered into a purchase and sale agreement with Hunt Oil Company (“Hunt”) to acquire certain oil and gas assets in the Eagle Ford Shale, primarily in Gonzales and Lavaca Counties, Texas for $86.0 million in cash, subject to adjustments (the “Hunt Acquisition”). The Hunt Acquisition has an effective date of October 1, 2017 and closed on March 1, 2018. We funded the Hunt Acquisition with borrowings under the Credit Facility. The Hunt Acquisition expands our core net leasehold position by approximately 9,700 net acres, substantially all of which is held by production, in the northwestern portion of our Eagle Ford acreage. As a result of the Hunt Acquisition we are the operator of substantially all of our Eagle Ford acreage.

Devon Acquisition

In July 2017, we entered into a purchase and sale agreement (the “Purchase Agreement”), with Devon Energy Corporation (“Devon”) to acquire all of Devon’s right, title and interest in and to certain oil and gas assets (the “Devon Properties”), including oil and gas leases covering approximately 19,600 net acres located primarily in Lavaca County, Texas for aggregate consideration of $205 million in cash (the “Devon Acquisition”). Upon execution of the Purchase Agreement, we deposited $10.3 million as earnest money into an escrow account (the “Escrow Account”). The Devon Acquisition has an effective date of March 1, 2017 and closed on September 29, 2017, at which time we paid cash consideration of $189.9 million and $7.1 million was released from the Escrow Account to Devon. In November 2017, we acquired additional working interests in the Devon Properties for $0.7 million from parties that had tag-along rights to sell their interests under the Purchase Agreement.

The final settlements of the Devon Acquisition together with the tag-along rights acquisition, occurred in February 2018 at which time $2.5 million in cash was transferred from the Escrow Account to Devon representing final adjustments for the period from the effective date through the closing date and the curing of title defects for certain properties. As of December 31, 2017, there was $3.2 million remaining in the Escrow Account, which is included as a component of noncurrent “Other assets” on our Consolidated Balance Sheet. Of this total, $2.5 million was transferred as described above and the remaining $0.7 million was distributed to us in February 2018 as well.

The Devon Acquisition was financed with the net proceeds received from borrowing under the $200 million Second Lien Credit Agreement dated as of September 29, 2017 (the “Second Lien Facility”) (see Note 10 for terms of the Second Lien Facility) and incremental borrowings under the Credit Facility. The Devon Properties include increases in working interests of many properties for which we are the operator as well as other properties that are contiguous to our existing asset base in South Texas.

We incurred a total of $1.3 million of transaction costs associated with the Hunt and Devon Acquisitions during 2017, including advisory, legal, due diligence and other professional fees. These costs have been recognized as a component of our “General and administrative” expenses.

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



Assets
Oil and gas properties - proved	$	42,891
Oil and gas properties - unproved	146,686
Other property and equipment	8,642
Liabilities
Asset retirement obligations	494
Net assets acquired	$	197,725

Cash consideration paid	$	190,599
Amount transferred to Devon from the Escrow Account on the Date of Acquisition	7,049
Amount due to Devon from the Escrow Account in February 2018	2,506
Application of working capital adjustments, net	(2,429		)
Total consideration	$	197,725

The fair values of the oil and gas properties acquired were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future cash flows (v) the timing of or development plans and (vi) a market-based weighted-average cost of capital. The fair value of the other property and equipment acquired was measured primarily with reference to replacement costs for similar assets adjusted for the age and normal use of the underlying assets. 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 GAAP.

The results of operations attributable to the Devon Acquisition have been included in our Consolidated Financial Statements for the periods after September 30, 2017. The Devon Acquisition provided revenues and earnings of approximately $9 million and $4 million, respectively, for the period from October 1, 2017 through December 31, 2017. The following table presents unaudited summary pro forma financial information for the year ended December, 31, 2017 assuming the Devon Acquisition and the related entry into the Second Lien Facility occurred as of January 1, 2017. The pro forma financial information does not purport to represent what our actual results of operations would have been if the Devon Acquisition and the entry into the Second Lien Facility had occurred as of this date, or the results of operations for any future periods. We have excluded any pro forma presentations for the Successor and Predecessor periods in 2016 as the determination of such pro forma adjustments are not practical due primarily to our reorganization and adoption of Fresh Start Accounting and the full cost method on the Emergence Date. In light of these circumstances, we also believe that such a pro forma presentation for 2016 would not be comparable and could potentially be misleading.



Total revenues	$	184,831
Net income attributable to common shareholders	$	23,360
Net income per share - basic	$	1.56
Net income per share - diluted	$	1.55

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.

Mid-Continent Properties

In October 2015, we sold certain properties in Oklahoma that were outside of our core Granite Wash operating region for approximately $0.1 million which represented their approximate carrying values.

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 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 for the year ended December 31, 2015. The net proceeds from this transaction were used to pay down a portion of our outstanding borrowings under the RBL.