Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2014 |
Accounting Policies [Abstract] | ' |
Summary of Significant Accounting Policies | ' |
Summary of Significant Accounting Policies |
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Basis of Presentation. The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company's interim results. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. The Company's Annual Report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company's 2013 Annual Report on Form 10-K. |
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Use of Estimates. In the course of preparing the Company's financial statements in accordance with GAAP, management makes various assumptions, judgments and estimates to determine the reported amount of assets, liabilities, revenues and expenses and in the disclosure of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established. |
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Areas requiring the use of assumptions, judgments and estimates relate to the expected cash settlement of the Company's 5% Convertible Senior Notes due 2028 ("Convertible Notes") in computing diluted earnings per share, volumes of oil, natural gas and NGL reserves used in calculating depreciation, depletion and amortization ("DD&A"), the amount of expected future cash flows used in determining possible impairments of oil and gas properties and the amount of future capital costs used in these calculations. Assumptions, judgments and estimates also are required in determining asset retirement obligations, the timing of dry hole costs, impairments of undeveloped properties, valuing deferred tax assets and estimating fair values of derivative instruments and stock-based compensation awards. |
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Accounts Receivable. Accounts receivable is comprised of the following: |
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| As of September 30, 2014 | | As of December 31, 2013 | | | | | | | | | |
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Accrued oil, gas and NGL sales | $ | 58,175 | | | $ | 67,583 | | | | | | | | | | |
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Due from joint interest owners | 25,339 | | | 23,507 | | | | | | | | | | |
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Other | 5,054 | | | 6,517 | | | | | | | | | | |
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Allowance for doubtful accounts | (14 | ) | | (21 | ) | | | | | | | | | |
Total accounts receivable | $ | 88,554 | | | $ | 97,586 | | | | | | | | | | |
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Oil and Gas Properties. The Company's oil, gas and NGL exploration and production activities are accounted for using the successful efforts method. Under this method, all property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether the well has found proved reserves. If an exploratory well does not find proved reserves, the costs of drilling the well are charged to expense and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows. If an exploratory well does find proved reserves, the costs remain capitalized and are included within additions to oil and gas properties and remain within cash flows from investing activities in the Unaudited Consolidated Statements of Cash Flows when incurred. The costs of development wells are capitalized whether proved reserves are added or not. Oil and gas lease acquisition costs are also capitalized. Upon sale or retirement of depreciable or depletable property, the cost and related accumulated DD&A are eliminated from the accounts and the resulting gain or loss is recognized. |
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Other exploration costs, including certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized to the appropriate property and equipment accounts. |
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Unproved oil and gas property costs are transferred to proved oil and gas properties if the properties are subsequently determined to be productive or are assigned proved reserves. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain until all costs are recovered. Unproved oil and gas properties are assessed periodically for impairment based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, future plans to develop acreage and other relevant matters. |
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Materials and supplies consist primarily of tubular goods and well equipment to be used in future drilling operations or repair operations and are carried at the lower of cost or market value, on a first-in, first-out basis. |
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The following table sets forth the net capitalized costs and associated accumulated DD&A and non-cash impairments relating to the Company's oil, natural gas and NGL producing activities: |
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| As of September 30, 2014 | | As of December 31, 2013 | | | | | | | | | |
| (in thousands) | | | | | | | | | |
Proved properties | $ | 382,867 | | | $ | 485,427 | | | | | | | | | | |
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Wells and related equipment and facilities | 1,406,678 | | | 2,192,754 | | | | | | | | | | |
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Support equipment and facilities | 60,588 | | | 177,224 | | | | | | | | | | |
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Materials and supplies | 13,345 | | | 8,518 | | | | | | | | | | |
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Total proved oil and gas properties | $ | 1,863,478 | | | $ | 2,863,923 | | | | | | | | | | |
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Unproved properties | 185,237 | | | 239,925 | | | | | | | | | | |
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Wells and facilities in progress | 97,585 | | | 56,674 | | | | | | | | | | |
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Total unproved oil and gas properties, excluded from amortization | $ | 282,822 | | | $ | 296,599 | | | | | | | | | | |
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Accumulated depreciation, depletion, amortization and impairment | (443,748 | ) | | (976,339 | ) | | | | | | | | | |
Total oil and gas properties, net | $ | 1,702,552 | | | $ | 2,184,183 | | | | | | | | | | |
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All exploratory wells are evaluated for economic viability within one year of well completion. Exploratory wells that discover potentially economic reserves in areas where a major capital expenditure would be required before production could begin, and where the economic viability of that major capital expenditure depends upon the successful completion of further exploratory work in the area, remain capitalized if the well finds a sufficient quantity of reserves to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. As of September 30, 2014 and December 31, 2013, there were no exploratory well costs that had been capitalized for a period greater than one year since the completion of drilling. |
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The Company reviews proved oil and gas properties on a field-by-field basis for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected undiscounted future cash flows of its oil and gas properties and compares such undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying value of a property exceeds the undiscounted future cash flows, the Company will impair the carrying value to fair value based on an analysis of quantitative and qualitative factors. The Company has no guarantee that the undiscounted future cash flows analysis of its proved property represents the applicable market value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the expected cash flows projected. |
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The Company recognized non-cash impairment charges, which were included within impairment, dry hole costs and abandonment expense in the Unaudited Consolidated Statements of Operations, as follows: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2014 | | 2013 | | 2014 | | 2013 | |
| (in thousands) | |
Non-cash impairment of proved oil and gas properties | $ | 11,493 | | (1) | $ | 198,787 | | (2) | $ | 12,531 | | (3) | $ | 198,787 | | (2) |
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Non-cash impairment of unproved oil and gas properties | 15,250 | | (1) | 17,777 | | (2) | 15,250 | | (3) | 17,777 | | (2) |
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Non-cash impairment of inventory | — | | | — | | | 340 | | | — | | |
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Dry hole costs | 3 | | | (36 | ) | | 96 | | | 928 | | |
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Abandonment expense | 2,363 | | | 2,835 | | | 4,396 | | | 10,154 | | |
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Total non-cash impairment, dry hole costs and abandonment expense | $ | 29,109 | | | $ | 219,363 | | | $ | 32,613 | | | $ | 227,646 | | |
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-1 | As a result of the Powder River Oil Divestiture (see Note 4) and results of drilling and completion activity in the Paradox Basin during the three months ended September 30, 2014, the remaining carrying values of Powder River Oil and Paradox Basin assets were analyzed relative to their estimated fair market values. As a result, the Company recognized proved and unproved property impairments of $11.5 million and $15.3 million, respectively. | | | | | | | | | | | | | | | |
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-2 | We classified certain oil and gas properties in the West Tavaputs field in the Uinta Basin as held for sale as of September 30, 2013 (see Note 4). Upon the classification as held for sale, the carrying value of the related properties was analyzed relative to the estimated fair value. As a result, we recognized $198.8 million of proved impairment expense and $2.5 million of unproved property impairment expense during the three and nine months ended September 30, 2013. In addition, we recognized $15.3 million of impairment expense related to certain unproved oil and gas properties within various exploration and development projects primarily as a result of no future plans to evaluate the remaining acreage and an estimated market value below our carrying value. | | | | | | | | | | | | | | | |
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-3 | As a result of the Powder River Oil Divestiture and results of drilling and completion activity in the Paradox Basin during the nine months ended September 30, 2014, the remaining carrying values of Powder River Oil and Paradox Basin assets were analyzed relative to their estimated fair market values. As a result, the Company recognized proved and unproved property impairments of $11.5 million and $15.3 million, respectively. In addition, $1.0 million of proved impairment expense was incurred during the nine months ended September 30, 2014 related to the West Tavaputs Divestiture (see Note 4) based upon a true up of previously estimated fair value relative to carrying value. | | | | | | | | | | | | | | | |
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The provision for DD&A of oil and gas properties is calculated on a field-by-field basis using the unit-of-production method. Natural gas and NGLs are converted to an oil equivalent, Boe, at the standard rate of six Mcf to one Boe and forty-two gallons to one Boe, respectively. Estimated future dismantlement, restoration and abandonment costs are taken into consideration by this calculation. |
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Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities are comprised of the following: |
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| As of September 30, 2014 | | As of December 31, 2013 | | | | | | | | | |
| (in thousands) | | | | | | | | | |
Accrued drilling, completion and facility costs | $ | 85,517 | | | $ | 54,750 | | | | | | | | | | |
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Accrued lease operating, gathering, transportation and processing expenses | 13,025 | | | 17,317 | | | | | | | | | | |
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Accrued general and administrative expenses | 7,042 | | | 14,605 | | | | | | | | | | |
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Trade payables and other | 49,336 | | | 29,256 | | | | | | | | | | |
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Total accounts payable and accrued liabilities | $ | 154,920 | | | $ | 115,928 | | | | | | | | | | |
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Environmental Liabilities. Environmental expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed. Environmental liabilities are accrued when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. |
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Revenue Recognition. Oil, gas and NGL revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and collectability of the revenue is reasonably assured. The Company uses the sales method to account for gas and NGL imbalances. Under this method, revenues are recorded on the basis of gas and NGLs actually sold by the Company. In addition, the Company records revenues for its share of gas and NGLs sold by other owners that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company also reduces revenues for other owners' gas and NGLs sold by the Company that cannot be volumetrically balanced in the future due to insufficient remaining reserves. The Company's remaining over- and under- produced gas and NGLs balancing positions are taken into account in determining the Company's proved oil, gas and NGL reserves. Imbalances at September 30, 2014 and 2013 were not material. |
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Derivative Instruments and Hedging Activities. The Company periodically uses derivative financial instruments to achieve a more predictable cash flow from its oil, natural gas and NGL sales by reducing its exposure to price fluctuations. Derivative instruments are recorded at fair market value and are included in the Unaudited Consolidated Balance Sheets as assets or liabilities. |
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Income Taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when assets are recovered or liabilities are settled. Deferred income taxes also include tax credits and net operating losses that are available to offset future income taxes. Deferred income taxes are measured by applying currently enacted tax rates. |
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The Company accounts for uncertainty in income taxes for tax positions taken or expected to be taken in a tax return. Only tax positions that meet the more-likely-than-not recognition threshold are recognized. |
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Earnings/Loss Per Share. Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding during each period. Diluted net income per common share is calculated by dividing net income attributable to common stock by the weighted average number of common shares outstanding and other dilutive securities. Potentially dilutive securities for the diluted net income per common share calculations consist of nonvested equity shares of common stock, in-the-money outstanding stock options to purchase the Company's common stock and shares into which the Convertible Notes are convertible. No potential common shares are included in the computation of any diluted per share amount when a net loss exists, as was the case for the three and nine months ended September 30, 2014 and 2013. |
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In satisfaction of its obligation upon conversion of the Convertible Notes, the Company may elect to deliver, at its option, cash, shares of its common stock or a combination of cash and shares of its common stock. As of September 30, 2014, the Company expected to settle the remaining Convertible Notes in cash. Therefore, the treasury stock method was used to measure the potentially dilutive impact of shares associated with that remaining conversion feature. The Company has the right with at least 30 days' notice to call the Convertible Notes and the holders have the right to require the Company to purchase the notes on March 20, 2015. The Convertible Notes have not been dilutive since their issuance in March 2008 and, therefore, did not impact the diluted net income (loss) per common share calculation for the three and nine months ended September 30, 2014 and 2013. The diluted net income (loss) per common share excludes the anti-dilutive effect of 1,336,252 and 2,450,539 shares of stock options and nonvested performance-based shares of common stock for the three months ended September 30, 2014 and 2013, and 1,199,451 and 2,731,578 shares of stock options and nonvested performance-based shares of common stock for the nine months ended September 30, 2014 and 2013, respectively. |
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The following table sets forth the calculation of basic and diluted loss per share: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2014 | | 2013 | | 2014 | | 2013 | |
| (in thousands, except per share amounts) | |
Net loss | $ | (34,649 | ) | | $ | (166,656 | ) | | $ | (73,984 | ) | | $ | (185,534 | ) | |
Basic weighted-average common shares outstanding in period | 48,060 | | | 47,535 | | | 47,983 | | | 47,453 | | |
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Add dilutive effects of stock options and nonvested equity shares of common stock | — | | | — | | | — | | | — | | |
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Diluted weighted-average common shares outstanding in period | 48,060 | | | 47,535 | | | 47,983 | | | 47,453 | | |
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Basic net loss per common share | $ | (0.72 | ) | | $ | (3.51 | ) | | $ | (1.54 | ) | | $ | (3.91 | ) | |
Diluted net loss per common share | $ | (0.72 | ) | | $ | (3.51 | ) | | $ | (1.54 | ) | | $ | (3.91 | ) | |
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New Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers. The objective of this update is to clarify the principles for recognizing revenue and to develop a common revenue standard. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the potential impact that the adoption will have on the Company’s disclosures and financial statements. |
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In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The objective of this update is to provide guidance on the treatment of a performance target that could be achieved after the requisite service period. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The adoption of this standard will not have an impact on the Company's consolidated financial statements. |
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In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The objective of this update is to provide guidance in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of this standard will not have an impact on the Company's consolidated financial statements. |