Note 3 - Divestitures, Assets Held for Sale, and Acquisitions

Divestitures

On March 10, 2017, the Company divested its outside-operated Eagle Ford shale assets, including its ownership interest in related midstream assets, for total cash received at closing, net of commissions (referred to throughout this report as “net divestiture proceeds”), of $747.4 million, and recorded an estimated net gain of $397.4 million for the six months ended June 30, 2017. These assets were classified as held for sale as of December 31, 2016.

The following table presents income (loss) before income taxes from the outside-operated Eagle Ford shale assets sold for the three and six months ended June 30, 2017, and 2016. This divestiture is considered a disposal of a significant asset group.



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands)
Income (loss) before income taxes ⁽¹⁾	$	—	$	12,832	$	24,324	$	(273,567	)

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⁽¹⁾	Income (loss) before income taxes reflects oil, gas, and NGL production revenue, less oil, gas, and NGL production expense, and depletion, depreciation, amortization, and asset retirement obligation liability accretion. Additionally, income (loss) before income taxes included impairment of proved properties expense of approximately $269.6 million for the six months ended June 30, 2016.

During the second quarter of 2017, the Company divested a portion of its Divide County, North Dakota assets for net divestiture proceeds of $24.6 million. Also during the second quarter of 2017, the Company finalized the 2016 divestiture of its Raven/Bear Den assets resulting in a final net gain of $29.1 million.

Assets Held for Sale

Assets are classified as held for sale when the Company commits to a plan to sell the assets and there is reasonable certainty the sale will take place within one year. Upon classification as held for sale, long-lived assets are no longer depreciated or depleted, and a measurement for impairment is performed to identify and expense any excess of carrying value over fair value less estimated costs to sell. When assets no longer meet the criteria of assets held for sale, they are measured at the lower of the carrying value of the assets before being classified as held for sale, adjusted for any depletion, depreciation, and amortization expense that would have been recognized, or the fair value at the date they are reclassified to assets held for use. Any gain or loss recognized on assets held for sale or on assets held for sale that are subsequently reclassified to assets held for use is reflected in the net gain (loss) on divestiture activity line item in the accompanying condensed consolidated statements of operations (“accompanying statements of operations”). As of June 30, 2017, there were $18.7 million of assets held for sale presented in the accompanying condensed consolidated balance sheets (“accompanying balance sheets”).

During the second quarter of 2017, the Company reclassified its retained Divide County assets previously held for sale to assets held for use due to the assets no longer being actively marketed as valuations in the sales process did not reach the Company’s expectations. A $359.6 million write-down was recorded on these assets in the first quarter of 2017 based on the estimated fair value less selling costs as of March 31, 2017. An additional $166.9 million write-down was recorded in the second quarter of 2017 based on market conditions that existed on the date the Company made its decision to retain these assets.

For the first quarter of 2016, certain assets held for sale were written down by $68.3 million to reflect fair value less estimated costs to sell at March 31, 2016. During the second quarter of 2016, the Company estimated an increase in the fair value of certain of these previously impaired assets held for sale due to an increase in estimated selling prices, as evidenced by bid prices received from third parties, resulting in a $49.5 million gain recorded for the three months ended June 30, 2016.

Acquisitions

During the first half of 2017, the Company acquired approximately 3,400 net acres of primarily unproved properties in the Midland Basin in multiple transactions totaling $72.3 million of cash consideration. Under authoritative accounting guidance, these transactions were considered asset acquisitions and the properties were recorded based on the fair value of the total consideration transferred on the acquisition date and transaction costs were capitalized as a component of the cost of the assets acquired.

The Company finalized the 2016 acquisition of Midland Basin properties from Rock Oil Holdings, LLC (referred to as the “Rock Oil Acquisition”) during the first quarter of 2017 by paying an additional $7.4 million of cash consideration, resulting in total consideration of $998.4 million paid after final closing adjustments. Subsequent to June 30, 2017, the Company finalized the 2016 acquisition of Midland Basin properties from QStar LLC and RRP-QStar, LLC (referred to as the “QStar Acquisition”). The Company paid an additional $7.1 million of cash consideration during 2017, with the majority of this payment being made in the first quarter of 2017, resulting in total consideration of $1.6 billion after final closing adjustments. There were no material changes to the recorded basis of these proved and unproved properties acquired as a result of the final settlements.

Also, during the first half of 2017, the Company completed several trades of properties, primarily unproved, in Howard and Martin Counties, Texas resulting in the Company acquiring approximately 6,550 net acres in exchange for approximately 5,700 net acres. These trades were recorded at carryover basis with no gain or loss recognized.