Properties and Equipment

9 Months Ended

Sep. 30, 2017

Property, Plant and Equipment Disclosure

PENDING ACQUISITION AND ACREAGE EXCHANGES

Pending Acquisition. In September 2017, we entered into an acquisition agreement to acquire certain assets from Bayswater Exploration & Production, LLC ("Bayswater") and certain related parties, pursuant to which, subject to the terms and conditions of the agreement, we have agreed to acquire approximately 8,300 net acres, 30 operated drilled uncompleted wells ("DUCs"), and an estimated 240 gross drilling locations, for approximately $210 million in cash, subject to certain pre- and post-closing adjustments. We plan to turn-in-line 18 of these DUCs at approximately year-end 2017, with the completion costs expected to be treated as an increase to the purchase price. Upon executing the purchase and sale agreement, we paid a $21 million deposit toward the purchase price into an escrow account, which is included in other assets on our September 30, 2017 condensed consolidated balance sheet. Assuming all conditions required for closing are met, the acquisition is expected to close in December 2017 and is expected to be funded by a combination of available cash and debt.

Pending Acreage Exchanges. In September 2017, we entered into an acreage exchange transaction to consolidate certain acreage positions in the core area of the Wattenberg Field. Pursuant to the transaction, we will exchange leasehold acreage with some limited in-process development wells. Upon closing, we expect to receive approximately 11,700 net acres in exchange for approximately 12,100 net acres with minimal cash exchanged between the parties. The difference in net acres is primarily due to variances in working and net revenue interests. The acreage exchange is expected to close in the fourth quarter of 2017; however, there can be no assurance that conditions to closing will be satisfied.

In June 2017, we entered into an acreage exchange transaction that also involves the consolidation of certain acreage positions in the core area of the Wattenberg Field. Pursuant to the transaction, we will exchange leasehold acreage with some limited in-process development wells. Upon closing, we estimate that we will receive approximately 3,900 net acres in exchange for approximately 4,100 net acres with minimal cash exchanged between the parties. The difference in net acres is primarily due to variances in working and net revenue interests. This acreage exchange is also expected to close in the fourth quarter 2017; however, there can be no assurance that conditions to closing will be satisfied.

PROPERTIES AND EQUIPMENT AND ASSETS HELD-FOR-SALE

The following table presents the components of properties and equipment, net of accumulated depreciation, depletion, and amortization ("DD&A"):



	September 30, 2017			December 31, 2016
	(in thousands)
Properties and equipment, net:
Crude oil and natural gas properties
Proved	$	3,759,501		$	3,499,718
Unproved	1,559,717			1,874,671
Total crude oil and natural gas properties	5,319,218			5,374,389
Infrastructure, pipeline, and other	104,568			62,093
Land and buildings	10,714			6,392
Construction in progress	177,341			122,591
Properties and equipment, at cost	5,611,841			5,565,465
Accumulated DD&A	(1,729,141		)	(1,562,471		)
Properties and equipment, net	$	3,882,700		$	4,002,994

The following table presents impairment charges recorded for crude oil and natural gas properties:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)

Impairment of unproved properties	$	252,623	$	338	$	282,188	$	2,391
Amortization of individually insignificant unproved properties	117		595		311		681
Impairment of crude oil and natural gas properties	252,740		933		282,499		3,072
Land and buildings	—		—		—		3,032
Total impairment of properties and equipment	$	252,740	$	933	$	282,499	$	6,104

During the three months ended September 30, 2017, we recorded a charge related to two exploratory dry holes we had drilled in the western area of our Culberson County acreage in the Delaware Basin, as referenced previously. We then assessed the impact of the dry holes and various factors related thereto, including (i) the operational and geologic data obtained, (ii) the current increased cost environment for drilling and completion services in the Delaware Basin, (iii) our decreased future commodity price outlook, and (iv) the terms of the related lease agreements. Based on the results of this assessment, we concluded that the underlying geologic risk and the challenged economics of future capital expenditures reduced the likelihood that we would perform future development in this area over the remaining lease term for this acreage. Accordingly, we recorded an impairment of $251.6 million covering approximately 13,400 acres during the third quarter of 2017. The amount of the impairment of these unproved properties was based on the value assigned to individual lease acres in the final purchase price allocation of the business combination. This allocation had included the consideration paid to the sellers, including the effect of the non-cash impact from the deferred tax liability created at the time of the acquisition. Due to the aforementioned events and circumstances in the third quarter of 2017, we evaluated our proved property for possible impairment and concluded that these assets were not impaired during the period.

Classification of Assets as Held-for-Sale. During the third quarter of 2017, as part of our plan to divest the Utica Shale properties, we engaged an investment banking group and began actively marketing the properties for sale; therefore, these properties are classified as held-for-sale as they met the criteria for such classification during the third quarter of 2017.

The following table presents balance sheet data related to assets held-for-sale, which include the Utica Shale properties, field office facilities, and a parcel of land that are being marketed for sale. Assets held-for-sale represents the assets that are expected to be sold, net of liabilities, that are expected to be assumed by the purchasers:



	September 30, 2017		December 31, 2016
	(in thousands)
Assets
Properties and equipment, net	$	41,983	$	5,272
Total assets	$	41,983	$	5,272

Liabilities
Asset retirement obligation	$	499	$	—
Total liabilities	$	499	$	—

Net assets	$	41,484	$	5,272