Acquisitions and Divestitures

12 Months Ended

Dec. 31, 2011

Business Combinations [Abstract]

Acquisitions and Divestitures

Acquisitions and Divestitures

On May 25, 2011, the Company acquired interests in producing properties on approximately 6,000 net acres in the Wolfberry trend in the Permian for an aggregate purchase price of $128.4 million (the Wolfberry Acquisition). The Wolfberry Acquisition had an effective date of March 1, 2011, with operations from March 1, 2011 through May 24, 2011 resulting in purchase price adjustments. The acquisition was financed using the Company's senior secured revolving credit facility. The Company operates 98% of and has an average 93% working interest (70% net revenue interest) in the properties acquired in the Wolfberry Acquisition.

The Company has not presented pro forma information for the properties acquired in the Wolfberry Acquisition, as the impact of the acquisition was insignificant to the Company's Statements of Operations for the year ended December 31, 2011. Revenues of $7.8 million from properties acquired in the Wolfberry Acquisition have been included in the accompanying Statements of Operations for the year ended December 31, 2011, and earnings from the acquired properties were insignificant. 

The following table summarizes the consideration paid to the sellers and the amounts of the assets acquired and liabilities assumed in the Wolfberry Acquisition:

	(in thousands)
Consideration paid to sellers:
Cash consideration	$	128,398
Recognized amounts of identifiable assets acquired and liabilities assumed:
Proved developed and undeveloped properties	128,697
Asset retirement obligation	(119		)
Other liabilities assumed	(180		)
Total identifiable net assets	$	128,398

In March, April and November 2010, the Company completed three separate acquisitions of producing properties located in the Wolfberry trend in the Permian for an aggregate purchase price of approximately $327.0 million (the Permian Acquisitions). The Permian Acquisitions were financed with net proceeds from the issuance in January 2010 of 8 million shares of the Company's Class A Common Stock, cash generated from operations and net proceeds from the issuance in November 2010 of $300 million aggregate principal amount of the Company's 6.75% senior notes due 2020 (2020 Notes).

In the first quarter of 2011, the Company recorded a $1.0 million gain (net of deferred income taxes of $0.7 million) in conjunction with usual and customary post-closing adjustments to the purchase price of the November 2010 Permian acquisition. The gain was recorded in the Statements of Operations under the caption gain on purchase.

Acquisition costs of $2.6 million were recorded for the Permian Acquisitions in the Statements of Operations under the caption transaction costs on acquisitions for the year ended December 31, 2010. Revenues of $28.7 million were included in the accompanying Statements of Operations for the year ended December 31, 2010, and earnings from the acquired properties in 2010 were insignificant.  

The following table summarizes the consideration paid to the sellers and the amounts of the assets acquired and liabilities assumed in the Permian Acquisitions:

	(in thousands)
Consideration paid to sellers:
Cash consideration	$	327,032
Recognized amounts of identifiable assets acquired and liabilities assumed:
Proved developed and undeveloped properties	332,214
Other assets acquired	342
Asset retirement obligation	(3,498		)
Deferred income tax liability	(647		)
Other liabilities assumed	(333		)
Total identifiable net assets	$	328,078

The Wolfberry Acquisition and the Permian Acquisitions qualify as business combinations and, as such, the Company estimated the fair value of each property as of each acquisition date (the date on which the Company obtained control of the properties). The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements also utilize assumptions of market participants. The Company used a discounted cash flow model based on an income approach and made market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates and risk adjusted discount rates. Given the unobservable nature of the inputs, nonrecurring measurements of business combinations are deemed to use Level 3 inputs.

In March 2009, the Company entered into an agreement to sell its assets in the Denver-Julesburg basin in Colorado. The transaction closed in April 2009. The Company recorded a pre-tax impairment loss of $9.6 million related to the sale, which is included in net earnings from discontinued operations in its Statements of Operations for the year ended December 31, 2009.

Earnings from discontinued operations, net of income tax, on the accompanying Statements of Operations for the year ended December 31, 2009 is comprised of the following (in thousands):

	Year Ended December 31, 2009
Sales of oil and natural gas(1)	$	11,555
Loss on sale of asset	(908		)
Other revenue	623
Total revenues	11,270
Realized and unrealized (gain) on derivatives, net	(13,786		)
Other expenses(2)	15,799
Total expenses	2,013
Earnings from discontinued operations, before income taxes	9,257
Provision for income taxes	2,451
Net earnings from discontinued operations	$	6,806

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(1) A $6.2 million realized gain included in sales of oil and natural gas was reclassified to discontinued operations for the year ended December 31, 2009.

(2) Includes $9.6 million of impairment charges related to the sale of the Company's assets in the DJ and $0.8 million of interest allocated to discontinued operations based on the ratio of net assets to the sum of total net assets.

At the time of the DJ asset sale, the Company had designated derivative instruments as cash flow hedges from the forecasted sale of natural gas produced by the DJ assets. As such, all recurring impacts on the Company's Statements of Operations were classified as discontinued operations. Additionally, the Company determined that as a result of the sale of the DJ assets, the forecasted transactions were no longer probable of occurring. Accordingly, the Company discontinued hedge accounting for such derivative instruments and reclassified a gain of $14.3 million from AOCL to net earnings from discontinued operations in its Statements of Operations.

During the first quarter of 2009, the Company entered into natural gas derivative instruments on behalf of the purchaser of its DJ assets. The Company did not elect hedge accounting for these derivative instruments and recorded an unrealized net loss of $0.5 million which is included in net earnings from discontinue operations in its Company's Statements of Operations.