Annual report pursuant to Section 13 and 15(d)

Acquisitions and Divestitures

v3.19.3.a.u2
Acquisitions and Divestitures
12 Months Ended
Dec. 31, 2019
Acquisitions and Divestitures [Abstract]  
Acquisitions and Divestitures .    Acquisitions and Divestitures 
Acquisitions
Eagle Ford Working Interests
In 2019, we acquired working interests in certain properties for which we are the operator from our joint venture partners in a series of transactions for cash consideration of $6.5 million. Funding for these acquisition was provided by borrowings under the Credit Facility.
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, covering approximately 9,700 net acres primarily in Gonzales County, Texas for $86.0 million in cash (the “Hunt Acquisition”). The Hunt Acquisition had an effective date of October 1, 2017 and closed in 2018. We paid total cash consideration of $83.0 million, net of suspended revenues received, for the Hunt Acquisition in 2018. 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, along with $0.2 million of certain working capital adjustments which we have reflected as components of the total net assets acquired. We funded the Hunt Acquisition with borrowings under the Credit Facility.
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 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 final 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
 
$
82,443

Oil and gas properties - unproved
 
16,339

Liabilities
 
 
Revenue suspense
 
1,448

Asset retirement obligations
 
356

Net assets acquired
 
$
96,978

 
 
 
Cash consideration paid to Hunt, net
 
$
82,955

Application of working capital adjustments
 
245

Accumulated costs, net of suspended revenues, for wells in which Hunt had rights to participate
 
13,778

Total acquisition costs incurred
 
$
96,978


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”). We also acquired working interests in the Devon Properties from parties that had tag-along rights to sell their interests under the Purchase Agreement. The Devon Acquisition had an effective date of March 1, 2017 and closed in September 2017. We paid total cash consideration of $199.8 million for the Devon Acquisition including $200.9 million paid in 2017 net of $1.1 million of suspended revenues and other adjustments paid to us in 2018 in connection with a final settlement. 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 9 for terms of the Second Lien Facility) and incremental borrowings under the Credit Facility.
We incurred a total of $1.3 million of transaction costs associated with the Devon Acquisitions during 2017, 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
 
$
199,796

Application of working capital adjustments, net
 
(2,451
)
Total consideration
 
$
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 or 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 and Devon Acquisitions have been included in our Consolidated Financial Statements for the periods after March 1, 2018 and September 30, 2017, respectively. The Devon Acquisition provided revenues and estimated earnings, excluding allocations of interest expense and income taxes, of approximately $9 million and $4 million, respectively, for the period from October 1, 2017 through December 31, 2017. The Hunt Acquisition provided revenues and estimated earnings, 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 years ended December, 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.
 
Year Ended December 31,
 
2018
 
2017
Total revenues
$
446,077

 
$
209,015

Net income
$
227,930

 
$
30,861

Net income per share - basic
$
15.14

 
$
2.06

Net income per share - diluted
$
14.91

 
$
2.05


Divestitures
Mid-Continent Divestiture
In June 2018, we entered into a purchase and sale agreement with a third party to fully divest our Mid-Continent operations and sell all of our remaining oil and gas properties, located primarily in Oklahoma in the Granite Wash, for $6.0 million in cash, subject to customary adjustments. The sale had an effective date of March 1, 2018 and closed on July 31, 2018, and we received proceeds of $6.2 million. The sale proceeds and de-recognition of certain assets and liabilities were recorded as a reduction of our net oil and gas properties. In November 2018, we paid $0.5 million, including $0.2 million of suspended revenues, to the buyer in connection with the final settlement.
The Mid-Continent properties had AROs of $0.3 million as well as a net working capital deficit attributable to the oil and gas properties of $1.3 million as of July 31, 2018. The net pre-tax operating income attributable to the Mid-Continent assets was $1.6 million and $2.2 million for the years ended December 31, 2018 and December 31, 2017, respectively.
Sales of Undeveloped Acreage, Rights and Other Assets
In February 2018, we sold all of our undeveloped acreage holdings in the Tuscaloosa Marine Shale in Louisiana that were scheduled to expire in 2019. In March 2018, we sold certain undeveloped deep leasehold rights in our former Mid-Continent operating region in Oklahoma, and in May 2018, we sold certain pipeline assets in our former Marcellus Shale operating region. We received a combined total of $1.7 million for these leasehold and other assets which were applied as a reduction of our net oil and gas properties.