Supplemental Oil and Natural Gas Data (Unaudited) | The following discussion and analysis should be read in conjunction with the “Consolidated Financial Statements” and “Notes to Consolidated Financial Statements,” which are included in this Annual Report on Form 10-K in Item 8. “Financial Statements and Supplementary Data.” Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities Costs incurred in oil and natural gas property acquisition, exploration and development, whether capitalized or expensed, are presented below: Year Ended December 31, 2016 2015 2014 (in thousands) Property acquisition costs: (1) Proved $ — $ — $ 2,306,541 Unproved — — 793,742 Exploration costs 40,074 19,929 644 Development costs 86,053 298,028 925,750 Asset retirement costs 419 4,152 14,855 Total costs incurred – continuing operations $ 126,546 $ 322,109 $ 4,041,532 Total costs incurred – discontinued operations $ 11,147 $ 132,427 $ 1,040,152 (1) See Note 3 for details about the Company’s acquisitions. Oil and Natural Gas Capitalized Costs Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below: December 31, 2016 2015 (in thousands) Proved properties $ 12,234,099 $ 16,337,814 Unproved properties 998,860 1,783,341 13,232,959 18,121,155 Less accumulated depletion and amortization (9,999,560 ) (11,097,492 ) 3,233,399 7,023,663 Less oil and natural gas capitalized costs, net – discontinued operations — (3,414,896 ) $ 3,233,399 $ 3,608,767 Results of Oil and Natural Gas Producing Activities The results of operations for oil, natural gas and NGL producing activities (excluding corporate overhead and interest costs) are presented below: Year Ended December 31, 2016 2015 2014 (in thousands) Revenues and other: Oil, natural gas and natural gas liquids sales $ 952,132 $ 1,151,240 $ 2,312,137 Gains (losses) on oil and natural gas derivatives (164,330 ) 1,027,014 1,127,395 787,802 2,178,254 3,439,532 Production costs: Lease operating expenses 317,046 375,840 443,157 Transportation expenses 161,037 167,561 165,489 Severance taxes, ad valorem taxes and California carbon allowances 73,806 111,350 169,417 551,889 654,751 778,063 Other costs: Exploration costs 4,080 9,473 125,037 Depletion and amortization 356,825 504,493 726,567 Impairment of long-lived assets 165,044 4,960,144 2,050,387 (Gains) losses on sale of assets and other, net 417 (199,296 ) (501,036 ) Texas margin tax expense (benefit) (649 ) (2,721 ) 3,984 525,717 5,272,093 2,404,939 Results of operations – continuing operations $ (289,804 ) $ (3,748,590 ) $ 256,530 Results of operations – discontinued operations (1) $ (1,066,634 ) $ (858,833 ) $ 213,280 (1) The results of discontinued operations for 2016 is for the period from January 1, 2016 through December 3, 2016. There is no federal tax provision included in the results above because the Company’s subsidiaries subject to federal tax do not own any of the Company’s oil and natural gas interests. Limited liability companies are subject to Texas margin tax. See Note 14 for additional information about income taxes. Proved Oil, Natural Gas and NGL Reserves The proved reserves of oil, natural gas and NGL of the Company have been prepared by the independent engineering firm, DeGolyer and MacNaughton. In accordance with Securities and Exchange Commission (“SEC”) regulations, reserves at December 31, 2016 , December 31, 2015 , and December 31, 2014 , were estimated using the average price during the 12-month period, determined as an unweighted average of the first-day-of-the-month price for each month, excluding escalations based upon future conditions. An analysis of the change in estimated quantities of oil, natural gas and NGL reserves, all of which are located within the U.S., is shown below: Year Ended December 31, 2016 Natural Gas (Bcf) Oil (MMBbls) NGL (MMBbls) Total Continuing Operations (Bcfe) Total Discontinued Operations (Bcfe) Total (Bcfe) Proved developed and undeveloped reserves: Beginning of year 2,231 103.4 97.3 3,435 1,053 4,488 Revisions of previous estimates (9 ) (4.3 ) 0.9 (29 ) (179 ) (208 ) Extensions, discoveries and other additions 265 10.1 15.2 417 11 428 Production (187 ) (10.0 ) (9.3 ) (303 ) (81 ) (384 ) Deconsolidation of Berry Petroleum Company, LLC proved reserves — — — — (804 ) (804 ) End of year 2,300 99.2 104.1 3,520 — 3,520 Proved developed reserves: Beginning of year 2,231 103.4 97.3 3,435 1,053 4,488 End of year 2,128 93.3 94.4 3,254 — 3,254 Proved undeveloped reserves: Beginning of year — — — — — — End of year 172 5.9 9.7 266 — 266 Year Ended December 31, 2015 Natural Gas (Bcf) Oil (MMBbls) NGL (MMBbls) Total Continuing Operations (Bcfe) Total Discontinued Operations (Bcfe) Total (Bcfe) Proved developed and undeveloped reserves: Beginning of year 3,568 197.4 146.3 5,631 1,673 7,304 Revisions of previous estimates (1,134 ) (81.9 ) (38.4 ) (1,855 ) (524 ) (2,379 ) Sales of minerals in place (13 ) (4.1 ) (2.0 ) (50 ) — (50 ) Extensions, discoveries and other additions 10 3.8 0.8 37 10 47 Production (200 ) (11.8 ) (9.4 ) (328 ) (106 ) (434 ) End of year 2,231 103.4 97.3 3,435 1,053 4,488 Proved developed reserves: Beginning of year 2,997 141.7 117.5 4,552 1,266 5,818 End of year 2,231 103.4 97.3 3,435 1,053 4,488 Proved undeveloped reserves: Beginning of year 571 55.7 28.8 1,079 407 1,486 End of year — — — — — — Year Ended December 31, 2014 Natural Gas (Bcf) Oil (MMBbls) NGL (MMBbls) Total Continuing Operations (Bcfe) Total Discontinued Operations (Bcfe) Total (Bcfe) Proved developed and undeveloped reserves: Beginning of year 2,730 194.7 183.5 4,999 1,404 6,403 Revisions of previous estimates 54 (13.0 ) (45.3 ) (297 ) (21 ) (318 ) Purchases of minerals in place 1,354 45.0 54.4 1,951 544 2,495 Sales of minerals in place (426 ) (22.8 ) (37.2 ) (786 ) (298 ) (1,084 ) Extensions, discoveries and other additions 36 6.7 2.5 92 158 250 Production (180 ) (13.2 ) (11.6 ) (328 ) (114 ) (442 ) End of year 3,568 197.4 146.3 5,631 1,673 7,304 Proved developed reserves: Beginning of year 1,824 138.7 125.2 3,407 933 4,340 End of year 2,997 141.7 117.5 4,552 1,266 5,818 Proved undeveloped reserves: Beginning of year 906 56.0 58.3 1,592 471 2,063 End of year 571 55.7 28.8 1,079 407 1,486 The tables above include changes in estimated quantities of oil and NGL reserves shown in Mcf equivalents using the ratio of one barrel to six Mcf. Berry was deconsolidated effective December 3, 2016, and its reserves are reported as discontinued operations for all periods presented. Proved reserves from continuing operations increased by approximately 85 Bcfe to approximately 3,520 Bcfe for the year ended December 31, 2016 , from 3,435 Bcfe for the year ended December 31, 2015 . The year ended December 31, 2016 , includes approximately 29 Bcfe of negative revisions of previous estimates ( 107 Bcfe due to lower commodity prices partially offset by 78 Bcfe of positive revisions due to asset performance). In addition, extensions and discoveries, primarily from 211 productive wells drilled during the year, contributed approximately 417 Bcfe to the increase in proved reserves. Proved reserves from continuing operations decreased by approximately 2,196 Bcfe to approximately 3,435 Bcfe for the year ended December 31, 2015 , from 5,631 Bcfe for the year ended December 31, 2014 . The year ended December 31, 2015 , includes approximately 1,855 Bcfe of negative revisions of previous estimates ( 1,348 Bcfe due to lower commodity prices, 258 Bcfe due to uncertainty regarding the Company’s future commitment to capital, 237 Bcfe due to the SEC five-year development limitation on PUDs and 12 Bcfe of negative revisions due to asset performance). During the year ended December 31, 2015 , divestitures including the Howard County Assets Sale decreased proved reserves by approximately 50 Bcfe. In addition, extensions and discoveries, primarily from 388 productive wells drilled during the year, contributed approximately 37 Bcfe to the increase in proved reserves. As a result of the uncertainty regarding the Company’s future commitment to capital, the Company reclassified all of its PUDs to unproved at December 31, 2015 . Proved reserves from continuing operations increased by approximately 632 Bcfe to approximately 5,631 Bcfe for the year ended December 31, 2014 , from 4,999 Bcfe for the year ended December 31, 2013. The year ended December 31, 2014 , includes approximately 297 Bcfe of negative revisions of previous estimates, due primarily to 174 Bcfe of negative revisions due to ethane rejection in the Hugoton and Green River basins, 129 Bcfe of negative revisions due to the SEC five-year development limitation on PUDs and 22 Bcfe of negative revisions due to asset performance, partially offset by 28 Bcfe of positive revisions primarily due to higher natural gas prices. During the year ended December 31, 2014 , acquisitions and properties acquired in the two exchanges with Exxon XTO and ExxonMobil increased proved reserves by approximately 1,951 Bcfe and the 2014 divestitures and properties relinquished in the two exchanges with Exxon XTO and ExxonMobil decreased proved reserves by approximately 786 Bcfe. In addition, extensions and discoveries, primarily from 506 productive wells drilled during the year, contributed approximately 92 Bcfe to the increase in proved reserves. Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Reserves Information with respect to the standardized measure of discounted future net cash flows relating to proved reserves is summarized below. Future cash inflows are computed by applying applicable prices relating to the Company’s proved reserves to the year-end quantities of those reserves. Future production, development, site restoration and abandonment costs are derived based on current costs assuming continuation of existing economic conditions. There are no future income tax expenses because the Predecessor was not subject to federal income taxes. Limited liability companies are subject to Texas margin tax; however, these amounts are not material. See Note 14 for additional information about income taxes. December 31, 2016 2015 2014 (in thousands) Future estimated revenues $ 10,876,241 $ 11,810,044 $ 38,350,590 Future estimated production costs (6,286,264 ) (7,276,564 ) (16,358,433 ) Future estimated development costs (971,055 ) (775,328 ) (2,899,781 ) Future net cash flows 3,618,922 3,758,152 19,092,376 10% annual discount for estimated timing of cash flows (1,690,224 ) (1,719,979 ) (10,910,462 ) Standardized measure of discounted future net cash flows – continuing operations $ 1,928,698 $ 2,038,173 $ 8,181,914 Standardized measure of discounted future net cash flows – discontinued operations $ — $ 995,372 $ 4,330,377 Representative NYMEX prices: (1) Natural gas (MMBtu) $ 2.48 $ 2.59 $ 4.35 Oil (Bbl) $ 42.64 $ 50.16 $ 95.27 (1) In accordance with SEC regulations, reserves were estimated using the average price during the 12-month period, determined as an unweighted average of the first-day-of-the-month price for each month, excluding escalations based upon future conditions. The average price used to estimate reserves is held constant over the life of the reserves. The following table summarizes the principal sources of change in the standardized measure of discounted future net cash flows: Year Ended December 31, 2016 2015 2014 (in thousands) Sales and transfers of oil, natural gas and NGL produced during the period $ (400,243 ) $ (496,489 ) $ (1,534,074 ) Changes in estimated future development costs 18,843 1,069,971 88,324 Net change in sales and transfer prices and production costs related to future production (162,460 ) (6,105,531 ) 421,484 Purchases of minerals in place — — 2,473,512 Sales of minerals in place — (97,785 ) (1,194,601 ) Extensions, discoveries and improved recovery 221,765 69,745 236,395 Previously estimated development costs incurred during the period — 91,719 550,514 Net change due to revisions in quantity estimates (9,291 ) (1,089,624 ) (606,104 ) Accretion of discount 203,817 818,191 726,400 Changes in production rates and other 18,094 (403,938 ) (243,933 ) Change – continuing operations $ (109,475 ) $ (6,143,741 ) $ 917,917 Change – discontinued operations $ (995,372 ) $ (3,335,005 ) $ (304,955 ) The data presented should not be viewed as representing the expected cash flow from, or current value of, existing proved reserves since the computations are based on a large number of estimates and assumptions. The required projection of production and related expenditures over time requires further estimates with respect to pipeline availability, rates of demand and governmental control. Actual future prices and costs are likely to be substantially different from the current prices and costs utilized in the computation of reported amounts. Any analysis or evaluation of the reported amounts should give specific recognition to the computational methods utilized and the limitations inherent therein. |