Property and Equipment
|9 Months Ended|
Sep. 30, 2018
|Property and Equipment|
|Property and Equipment||
6. Property and Equipment
Property and equipment consisted of the following as of the dates presented (in thousands):
Oil and Gas Properties
The Company capitalizes internal costs directly related to exploration and development activities to oil and gas properties. During the three and nine months ended September 30, 2018 and 2017, the Company capitalized the following (in thousands):
The Company accounts for its oil and gas properties under the full cost method. Under the full cost method, proceeds realized from the sale or disposition of oil and gas properties are accounted for as a reduction to capitalized costs unless a significant portion of the Company’s reserve quantities are sold such that it results in a significant alteration of the relationship between capitalized costs and remaining proved reserves, in which case a gain or loss is generally recognized in income. During the nine months ended September 30, 2018 and 2017, the Company disposed of certain oil and gas equipment for cash proceeds of $0.4 million and $1.4 million, respectively, which were reflected as reductions of oil and gas properties with no gain or loss recognized. In addition, during the nine months ended September 30, 2018, the Company disposed of its Anadarko Basin assets, which is discussed further below.
The Company performs a full cost ceiling test on a quarterly basis. The test establishes a limit (ceiling) on the book value of the Company’s oil and gas properties. The capitalized costs of oil and gas properties, net of accumulated depreciation, depletion, amortization and impairment (“DD&A”) and the related deferred income taxes, may not exceed this “ceiling.” The ceiling limitation is equal to the sum of: (i) the present value of estimated future net revenues from the projected production of proved oil and gas reserves, excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet, calculated using the average oil and natural gas sales price received by the Company as of the first trading day of each month over the preceding twelve months (such prices held constant throughout the life of the properties) and a discount factor of 10%; (ii) the cost of unproved properties excluded from the costs being amortized; (iii) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; and, (iv) related income tax effects. If capitalized costs exceed this ceiling, the excess is charged to expense in the accompanying unaudited interim condensed consolidated statements of operations. While the Company did not record any impairments of oil and gas properties during the three or nine months ended September 30, 2018 or 2017, the Company recorded impairments of oil and gas properties during the year ended December 31, 2017, the period January 1, 2016 through October 20, 2016 and the year ended December 31, 2015.
Depreciation, depletion and amortization is calculated using the Units of Production Method (“UOP”). The UOP calculation multiplies the percentage of total estimated proved reserves produced by the cost of those reserves. The result is to recognize expense at the same pace that the reservoirs are estimated to be depleting. The amortization base in the UOP calculation includes the sum of proved property costs net of accumulated DD&A, estimated future development costs (future costs to access and develop proved reserves) and asset retirement costs that are not already included in oil and gas property, less related salvage value. The following table presents depletion expense related to oil and gas properties for the periods presented:
Oil and gas unproved properties include costs that are not being depleted or amortized. The Company excludes these costs until proved reserves are found, until it is determined that the costs are impaired or until major development projects are placed in service, at which time the costs are moved into oil and natural gas properties subject to amortization. All unproved property costs are reviewed at least annually to determine if impairment has occurred. In addition, impairment assessments are made for interim reporting periods if facts and circumstances exist that suggest impairment may have occurred. During any period in which impairment is indicated, the accumulated costs associated with the impaired property are transferred to proved properties and become part of our depletion base and subject to the full cost ceiling limitation. No impairment of unproved properties was recorded during the three or nine months ended September 30, 2018 or 2017. Unproved property was $4.5 million and $7.1 million at September 30, 2018 and December 31, 2017, respectively.
Other Property and Equipment
Other property and equipment consists of vehicles, furniture and fixtures, and computer hardware and software and are carried at cost. Depreciation is calculated principally using the straight-line method over the estimated useful lives of the assets, which range from two to ten years. Maintenance and repairs are charged to expense as incurred, while renewals and betterments are capitalized.
Sale of Anadarko Basin Assets
On May 31, 2018, the Company closed on the sale of its Anadarko Basin assets for $58.0 million in cash ($54.4 million, net of closing adjustments), subject to standard post-closing adjustments. The net proceeds were reflected as a reduction of oil and natural gas properties, with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool. The Company used $50.0 million of the net proceeds from the sale of the Anadarko Basin assets to pay down a portion of outstanding borrowings under the Company’s reserves-based revolving credit facility (“RBL”) and retained the remainder for general corporate purposes.
The entire disclosure for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, accounting policies and methodology, roll forwards, depreciation, depletion and amortization expense, including composite depreciation, accumulated depreciation, depletion and amortization expense, useful lives and method used, income statement disclosures, assets held for sale and public utility disclosures.
Reference 1: http://www.xbrl.org/2003/role/presentationRef