Note 3 – Acquisitions and Dispositions

 

Acquisitions were accounted for under the acquisition method of accounting, which involves determining the fair value of the assets acquired and liabilities assumed under the income approach.

 

2015 acquisitions

 

On November 9, 2015, the Company acquired additional working interests in 628 net acres located in the Carpe Diem field and CaBo area in Midland, Andrews, Ector and Martin Counties, Texas, which are located in the central portion of the Midland Basin, for an aggregate cash purchase price of $29,800 based on an effective date of October 1, 2015. The acquisition increases the Company’s working interest in the Carpe Diem field to approximately 100% with a net revenue interest of 79% and increases the working interest in the CaBo area to approximately 67% with a net revenue interest of 50%. The following purchase price allocation is based on management’s estimates of the fair value of the assets acquired and liabilities assumed. The following table summarizes the acquisition date fair values of the net assets acquired:

 

 

 

2014 acquisitions

 

In the first quarter of 2014, the Company acquired 1,527 net acres in Upton and Reagan Counties, Texas, which are located in the southern portion of the Midland Basin near its existing core development fields, for an aggregate cash purchase price of $8,200. The properties bear a working interest of 100% and an average net revenue interest of 78%. The following table summarizes the acquisition date fair values of the net assets acquired:

 

 

 

On October 8, 2014, the Company completed the acquisition of certain undeveloped acreage and producing oil and gas properties located in Midland, Andrews, Ector and Martin Counties, Texas (the “Central Midland Basin Acquisition”) for an aggregate cash purchase price of $210,205 based on an effective date of May 1, 2014. The Company assumed operatorship of the properties on November 1, 2014, and acquired a 62% working interest (46.5% net revenue interest) in the Central Midland Basin Acquisition. The aggregate cash purchase price was funded with a combination of the net proceeds from an equity offering of $122,514 and a portion of the proceeds from borrowings under the Second Lien Loan. For additional information on the debt transactions and equity offering, see Notes 5 and 10, respectively. The following purchase price allocation is based on management’s estimates of the fair value of the assets acquired and liabilities assumed. The following table summarizes the acquisition date fair values of the net assets acquired:

 

 

 

The following unaudited summary pro forma financial information for the years ended December 31, 2014 and 2013 has been presented for illustrative purposes only and does not purport to represent what the Company’s results of operations would have been if the Central Midland Basin Acquisition had occurred as presented, or to project the Company’s results of operations for any future periods. The pro forma financial information was prepared assuming the Central Midland Basin Acquisition and the debt transactions and equity offering discussed in Notes 5 and 10, respectively, occurred as of January 1, 2013. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable, including revenue, lease operating expenses, production taxes, depreciation, depletion and amortization expense, accretion expense, interest expense and capitalized interest.

 

 

2013 acquisitions

 

During the second quarter of 2013, the Company acquired approximately 2,468 gross (2,186 net) acres in Reagan and Upton Counties, Texas, which is located in the Southern Midland Basin and which is prospective for both horizontal and vertical drilling. The acquisition also included seven gross vertical wells and 1,301 barrels of oil equivalent proved reserves. The purchase price of $11,000 was funded using a portion of the proceeds from the preferred stock offering (discussed in Note 10). The following purchase price allocation is based on management’s estimates of the fair value of the assets acquired and liabilities assumed. The following table summarizes the acquisition date fair values of the net assets acquired:

 

 

 

 

2013 dispositions

 

During the fourth quarter of 2013, the Company closed on the sale of its 15.0% working interest in the Medusa field (Mississippi Canyon blocks 582 and 538), our 10.0% membership interest in Medusa Spar LLC, and substantially all of our remaining Gulf of Mexico shelf properties for total net cash consideration of approximately $88,000. Also during the fourth quarter of 2013, the Company closed on the sale of its 69% interest in the Swan Lake field for $2,000. This was the Company’s only field in the Haynesville shale. The proceeds from these sales were accounted for as a reduction to capitalized costs as the sales did not significantly alter the relationship between capitalized costs and proved reserves.

 

Subsequent event

 

Subsequent to December 31, 2015, the Company completed the acquisition of an additional 4.9% working interest (3.7% net revenue interest) in the CaBo area for total cash consideration of $9,300, excluding customary purchase price adjustments. Following the completion of this acquisition the Company will own 71.3% working interest (53.5% net revenue interest) in the CaBo area.