Note 2. Acquisitions and Divestitures

Fair Value. The FASC Fair Value Measurements and Disclosures topic defines fair value as 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 (often referred to as the “exit price”). The fair value measurement is based on the assumptions of market participants and not those of the reporting entity. Therefore, entity-specific intentions do not impact the measurement of fair value unless those assumptions are consistent with market participant views.

The fair value of oil and natural gas properties is based on significant inputs not observable in the market, which the FASC Fair Value Measurements and Disclosures topic defines as Level 3 inputs. Key assumptions may include: (1) NYMEX oil and natural gas futures (this input is observable); (2) dollar-per-acre values of recent sale transactions (this input is observable); (3) projections of the estimated quantities of oil and natural gas reserves, including those classified as proved, probable and possible; (4) estimated oil and natural gas pricing differentials; (5) projections of future rates of production; (6) timing and amount of future development and operating costs; (7) projected costs of CO₂ (to a market participant); (8) projected reserve recovery factors; and (9) risk-adjusted discount rates.

2013 Acquisition

Cedar Creek Anticline Acquisition. In January 2013, we entered into an agreement to acquire producing assets in the Cedar Creek Anticline ("CCA") of Montana and North Dakota from a wholly-owned subsidiary of ConocoPhillips Company ("ConocoPhillips") for $1.05 billion ($1.0 billion after final closing adjustments primarily for revenues and costs of the purchased properties from the January 1, 2013 effective date to the closing date). We closed the acquisition on March 27, 2013. We funded the acquisition with a portion of the cash proceeds from the Bakken Exchange Transaction (described below). This acquisition meets the definition of a business under the FASC Business Combinations topic. As such, we estimated the fair value of assets acquired and liabilities assumed as of the closing date of the acquisition, using a discounted future net cash flow model.

The fair value of the assets acquired and liabilities assumed was finalized during the third quarter of 2013, after consideration of final closing adjustments, evaluation of oil and natural gas properties, other assets and related asset retirement obligations. The following table presents a summary of the fair value of assets acquired and liabilities assumed in the CCA acquisition:



In thousands
Consideration:
Cash consideration ⁽¹⁾	$	1,001,707

Fair value of assets acquired and liabilities assumed:
Oil and natural gas properties
Proved	783,507
Unevaluated	222,820
Other assets	2,589
Asset retirement obligations	(7,209		)
	$	1,001,707

(1)

$989.0 million of this cash consideration was paid through a qualified intermediary from cash placed in qualifying trust accounts from a portion of the proceeds received from the Bakken Exchange Transaction (as defined below) in order to enable a like-kind-exchange transaction for federal income tax purposes. As such, this amount is not reflected as a cash payment to purchase oil and natural gas properties in our Unaudited Condensed Consolidated Statement of Cash Flows.

For the three months ended September 30, 2013 and for the period from March 27, 2013 to September 30, 2013, we recognized $97.1 million and $189.8 million of oil, natural gas, and related product sales, respectively, from the property interests acquired in the CCA acquisition. For the three months ended September 30, 2013 and for the period from March 27, 2013 to September 30, 2013, we recognized $70.9 million and $138.8 million of net field operating income (defined as oil, natural gas and related product sales less lease operating expenses, production and ad valorem taxes, and marketing expenses), respectively, related to the CCA acquisition.

2012 Acquisitions and Divestitures

Bakken Exchange Transaction. In late 2012, we closed a sale and exchange transaction (the "Bakken Exchange Transaction") with Exxon Mobil Corporation and its wholly-owned subsidiary XTO Energy Inc. (collectively, “ExxonMobil”) in which we sold to ExxonMobil our Bakken area assets in North Dakota and Montana in exchange for (1) $1.3 billion in cash (after closing adjustments), (2) ExxonMobil's operating interests in Webster Field in Texas and Hartzog Draw Field in Wyoming, and (3) approximately a one-third overriding royalty ownership interest in ExxonMobil's CO₂ reserves in LaBarge Field in Wyoming.

This acquisition meets the definition of a business under the FASC Business Combinations topic. The fair value of the assets acquired and liabilities assumed was finalized during the third quarter of 2013, after consideration of final closing adjustments and evaluation of reserves. The following table presents a summary of the fair value of assets acquired and liabilities assumed in the Bakken Exchange Transaction:



In thousands
Consideration:
Fair value of net assets transferred	$	1,866,107

Fair value of assets acquired and liabilities assumed:
Cash	1,277,041
Oil and natural gas properties
Proved	182,289
Unevaluated	90,690
CO₂ properties	314,505
Other property and equipment	23,424
Other assets	477
Other liabilities	(8,528		)
Asset retirement obligations	(13,791		)
	$	1,866,107

Thompson Field Acquisition. In June 2012, we acquired a nearly 100% working interest and 84.7% net revenue interest in Thompson Field for $366.2 million after closing adjustments. The field is located in close proximity to Hastings Field, which is an enhanced oil recovery field that we are currently flooding with CO₂ and which is the current terminus of the Green Pipeline which transports CO₂ both from the Jackson Dome area, located near Jackson, Mississippi, and from various anthropogenic sources along the route of the pipeline. Thompson Field is similar to Hastings Field, producing oil from the Frio zone at similar depths, and is also a planned future tertiary field. Under the terms of the Thompson Field acquisition agreement, the seller will retain approximately a 5% gross revenue interest (less severance taxes) once average monthly oil production exceeds 3,000 Bbls/d after the initiation of CO₂injection.

This acquisition meets the definition of a business under the FASC Business Combinations topic. The fair values assigned to assets acquired and liabilities assumed in this acquisition have been finalized and no adjustments have been made to fair value amounts previously disclosed in our Form 10-K for the period ended December 31, 2012.

Unaudited Pro Forma Acquisition Information. The following combined pro forma total revenues and other income and net income are presented as if the CCA Acquisition, Bakken Exchange Transaction and Thompson Field acquisition had occurred on January 1, 2012:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
In thousands, except per share data	2013		2012		2013		2012
Pro forma total revenues and other income	$	684,835	$	598,340	$	2,000,179	$	1,925,385
Pro forma net income	102,054		92,857		347,624		461,009
Pro forma net income per common share
Basic	$	0.28	$	0.24	$	0.94	$	1.19
Diluted	0.28		0.24		0.94		1.18

Other 2012 Divestitures. In April 2012, we completed the sale of certain non-operated assets in the Paradox Basin of Utah for $75.0 million. The sale had an effective date of January 1, 2012 and proceeds received after final closing adjustments totaled $68.5 million. In February 2012, we completed the sale of certain non-core assets primarily located in central and southern Mississippi and in southern Louisiana for net proceeds of $141.8 million, after final closing adjustments. The sale had an effective date of December 1, 2011. We did not record a gain or loss on these divestitures in accordance with the full cost method of accounting.