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, at which time we paid cash consideration of $84.4 million. In connection with the Hunt Acquisition, we also acquired working interests in certain wells that we previously drilled as operator in which Hunt had rights to participate prior to the transaction closing. Accumulated costs, net of suspended revenues for these wells was $13.8 million which we have reflected as a component of the total net assets acquired. We funded the Hunt Acquisition with borrowings under our credit agreement (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.

We incurred a total of $0.5 million of transaction costs for legal, due diligence and other professional fees associated with the Hunt Acquisition, including $0.1 million in 2017 and $0.4 million in the first quarter of 2018. These costs have been recognized as a component of our G&A expenses.

We accounted for the Hunt Acquisition by applying the acquisition method of accounting as of March 1, 2018. The following table represents the preliminary fair values assigned to the net assets acquired and the total acquisition cost incurred, including consideration transferred to Hunt:



Assets
Oil and gas properties - proved	$	82,198
Oil and gas properties - unproved	16,339
Liabilities
Asset retirement obligations (“AROs”)	356
Net assets acquired	$	98,181

Cash consideration paid to Hunt	$	84,403
Accumulated costs, net of suspended revenues, for wells in which Hunt had rights to participate	13,778
Total acquisition costs incurred	$	98,181

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.

As of December 31, 2017, $3.2 million remained in the Escrow Account, which was included as a component of noncurrent “Other assets” on our Condensed Consolidated Balance Sheet. 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 and the remaining $0.7 million was distributed to us. In addition, Devon transferred $0.3 million to us for suspended revenues attributable to the acquired properties.

The Devon Acquisition was financed with the net proceeds received from borrowings under the $200 million Second Lien Credit Agreement dated as of September 29, 2017 (the “Second Lien Facility”) (see Note 8 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 $1.0 million of transaction costs in 2017 associated with the Devon Acquisition, including advisory, legal, due diligence and other professional fees. These costs have been recognized as a component of our G&A expenses.

We accounted for the Devon Acquisition by applying the acquisition method of accounting as of September 29, 2017. The following table represents the final fair values assigned to the net assets acquired and the total consideration transferred:



Assets
Oil and gas properties - proved	$	42,866
Oil and gas properties - unproved	146,686
Other property and equipment	8,642
Liabilities
Revenue suspense	355
Asset retirement obligations	494
Net assets acquired	$	197,345

Cash consideration paid to Devon and tag-along parties, net	$	190,277
Amount transferred to Devon from the Escrow Account	9,519
Application of working capital adjustments, net	(2,451		)
Total consideration transferred	$	197,345

Valuation of Acquisitions

The fair values of the oil and gas properties acquired in the Hunt and Devon Acquisitions 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 our 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.

Impact of Acquisitions on Actual and Pro Forma Results of Operations

The results of operations attributable to the Hunt Acquisition and Devon Acquisition have been included in our Consolidated Financial Statements for the periods after March 1, 2018 and after September 29, 2017, respectively. The Hunt Acquisition provided revenues and estimated earnings (including revenues less operating expenses and excluding allocations of interest expense and income taxes) of approximately $0.4 million and $0.2 million, respectively, for the period from March 1, 2018 through March 31, 2018. As the properties and working interests acquired in connection with the Hunt and Devon Acquisitions are included within our existing Eagle Ford acreage, it is not practical or meaningful to disclose revenues and earnings unique to those assets for periods beyond those during which they were acquired as they were fully integrated into our regional operations soon after their acquisition. The following table presents unaudited summary pro forma financial information for the three months ended March, 31, 2018 and 2017 assuming the Hunt and Devon Acquisitions 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 Hunt and Devon Acquisitions and the entry into the Second Lien Facility had occurred as of this date, or the results of operations for any future periods.



	Three Months Ended March 31,
	2018		2017
Total revenues	$	82,456	$	47,721
Net income	$	13,390	$	28,189
Net income (loss) per share - basic	$	0.89	$	1.88
Net income (loss) per share - diluted	$	0.89	$	1.86

Divestitures

In February 2018, we sold our undeveloped acreage holdings in the Tuscaloosa Marine Shale in Louisiana that were scheduled to expire in 2019 and in March 2018 we sold certain undeveloped deep leasehold rights in Oklahoma. We received a combined total of $1.6 million for these leasehold assets which were applied as a reduction of our net oil and gas properties.