| Summary of significant accounting policies | Note 2 . Summary of significant accounting policies Principles of consolidation. The consolidated financial statements of the Company include the accounts of the Company and its 100 percent owned subsidiaries. The consolidated financial statements also include the accounts of a variable interest en tity (“VIE”) where the Company wa s the primary beneficiary of the arrangements during the year ended December 31, 2017 . See Note 4 for additional information regarding the circumstances surrounding the VIE. The Company consolidates the financial statements of these entities. All material intercompany balances and transactions have been eliminated. R eclassifications. Certain prior period amounts have been reclassified to conform to the 2017 presentation. These reclassifications had no im pact on net income (loss), total stockholders’ equity or total cash flows. Use of estimates in the preparation of financial statements. Preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the se estimates. Depletion of oi l and natural gas properties is determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rat es of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves , commodity price outlooks and prevailing market rates of other sources of income and costs . Other significant estimates inclu de, but are not limited to, asset retirement obligations, fair value of stock-based compensation , fair value of business combinati ons, fair value of nonmonetary transactions, fair value of de rivative financial instruments and income taxes . Cash equivalents. The Company considers all cash on hand, depository accounts held by banks, money market accounts and investments with an origin al maturity of three months or less to be cash equivalents. The Company’s cash and cash equivalents are held in financial institutions in amounts that may exceed the insurance limits of the Federal Deposit Insurance Corporation. However, management believe s that the Company’s counterparty risks are minimal based on the reputation and history of the institutions selected. At December 31, 2016, the majority of the Company’s cash was invested in stable value government money market funds. Accounts receivable. The Company sells oil and natural gas to various customers and participates with other parties in the drilling, completion and operation of oil and natural gas wells. Oil and natural gas sales receivables related to these operations are generally unsecured. Jo int interest receivables are generally secured pursuant to the operating agreement between or among the co-owners of the operated property. The Company determines joint interest operations accounts receivable allowances based on management’s assessment of the creditworthiness of the joint interest owners and the Company’s ability to realize the receivables through netting of anticipated future production revenues. Receivables are considered past due if full payment is not received by the contractual due dat e. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. The Company had an allowance for doubtful accounts of approximately $ 1 million for each of the year s ended December 31, 2017 and 2016 . Inventory. Inventory consists primarily of tubular goods, water and other oilfield equipment that the Company plans to utilize in its ongoing exploration and development activities and is carried at the lower of cost o r net realizable value, on a weighted average cost basis . Oil and natural gas properties. The Company utilizes the successful efforts method of accounting for its oil and natural gas properties. Under this method all costs associated with productive wells and nonproductive development wells are capitalized, while nonproductive exploration costs are expensed. Capitalized leasehold costs relating to proved properties are depleted using the unit-of-production method based on proved reserves. The depletion of capitalized drilling and development costs and integra ted assets is based on the unit-of-production method using proved dev eloped reserves . During the years ended December 31, 2017 , 2016 and 2015 , the Company recognized depletion expense from operations of $ 1,122 million, $ 1,145 mi llion and $ 1,203 million, respectively. The Company generally does not carry the costs of drilling an exploratory well as an asset in its consolidated balance sheets following the completion of drilling unless both of the following conditions ar e met: the well has found 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. Due to the Company’s l arge multi-well project development program, capital intensive nature and geographical location of certain projects, it may take longer than one year to evaluate the future potential of the exploration well and economics associated with making a determinat ion on its commercial viability. In these instances, the project ’ s feasibility is not contingent upon price improvements or advances in technology, but rather the C ompany’ s ongoing efforts and expenditures related to accurately predicting the hydrocarbon r ecoverability based on well information, ga ining access to other companies’ production, transportation or processing facilities and/or getting partner approval to drill additional appraisal wells. These activities are ongoing and being pursued consta ntly. Consequently, the Company’ s assessment of suspended exploratory well costs is continuous until a decision can be made that the well has found proved reserves and is transferred to proved oil and natural gas properties or is noncommercial and is charged to exploration and abandonments expense. See Note 3 for additional in formation regarding the Company’ s suspended exploratory well costs. Proceeds from the sales of individual properties and the capitalized costs of individual properties sold or a bandoned are credited and charged, respectively, to accumulated depletion. Generally, no gain or loss is recognized until the entire depletion base is sold. However, gain or loss is recognized from the sale of less than an entire depletion base if the disp osition is significant enough to materially impact the depletion rate of the remaining properties in the depletion base. Ordinary maintenance and repair costs are expensed as incurred. Costs of significant nonproducing properties, wells in the process of being drilled and completed and development projects are excluded from depletion until the related project is completed. The Company capitalizes interest, if debt is outstanding, on expenditures for significant development projects until such projects ar e ready for their intended use. During the y ears ended December 31, 2017 and 2015 , the Company had capitalized interest of approximately $ 3 million and $ 1 million, respectively. The Company did not have capitalized interes t related to significant oil and natural gas development projects for the year ended December 31, 2016 . The Company reviews its long-lived assets to be held and used, including proved oil and natural gas properties, whenever events or circumstances ind icate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Company recognizes an impairment lo ss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. The Company reviews its oil and natural gas properties by depletion base . For each property determined to be impaired, an impairment loss equal to the difference between the carrying value of the properties and the estimated fair value (discounted future cash flows) of the properties and integrated assets would be recognized a t that time. Estimating future cash flows involves the use of judgments, including estimation of the proved and risk-adjusted unproved oil and natural gas reserve quantities, timing of development and production, expected future commodity prices, capital e xpenditures and production costs and cash flows from integrated assets . The Compan y recognized impairment expense of approximately $ 1.5 b illion and $ 61 million duri ng the years ended December 31, 2016 and 2015 , respectively, related to its proved oil and natural gas properties. The Company did not recognize impairment expense during the year ended December 31, 2017 . See Note 7 for additional in formation regarding the Company’ s impairment expense . Unpro ved oil and natural gas properties are periodically assessed for impairment by consid ering future drilling and exploration plans, results of exploration activities, commodity price outlooks, planned future sales and expiration of all or a portion of the pr ojects. During the years ended December 31, 2017 , 2016 and 2015 , the Company recognized expense of approximately $ 29 million, $ 60 million and $ 35 million, respectively, related to abandoned and expiring acreage , which is included in exploration and abandonments expense in the accompanying consolidated statements of operations. Other property and equipment. Other capital assets include buildings, transportation equipment, computer equipment and software, telecommunications equipment, leasehold improvements and furniture and fixtures. These items are recorded at cost, or fair value if acquired, and are depreciated using the straight-line method based on expected lives of the individual assets or group of a ssets ranging from two to 39 years. The Company had other capital assets of $ 234 million and $ 216 million, net of accumulated depreciation of $ 90 million and $ 74 million, at December 31, 2017 a nd December 31, 2016 , respectively. During the years ended December 31, 2017 , 2016 and 2015 , the Company recognized depreciation expense of $ 21 million, $ 21 million and $ 19 million, respectively. Dur ing the y ear ended December 31, 2015 , the Company had capitalized interest of approximately $ 1 million. The Company did not have capitalized interest related to other property and equipment during the years ended December 31, 2017 or 2016 . Funds held in escrow. At December 31, 2016 , the Company’s funds held in escrow totaled $43 million, which consisted of a deposit paid by the Company that was held in escrow for its Northern Delaware Basin acquisition. See Note 4 for additional information regarding the acquisition . Deferred loan costs. Deferred loan costs are stated at cost, net of amortization, which is computed using the straight-line method. The Company had deferred loan costs related to its credit facility o f $ 13 million and $ 11 million, net of accumulated amortization of $ 51 million and $ 56 million, in noncurrent assets at December 31, 2017 and 2016 , respectively. Intangible assets. The Company has capitalized certain rights acquired through acquisition s . The gross intangible assets , which have no residual value, are amortized over the estimated economic life of three to 25 years. Impairment will be assessed if indicators of potential impairment exist or when there is a material change in the remaining useful economic life . The following table reflects the gross and net intangible assets at December 31, 2017 and 2016 , respectively : December 31, (in millions) 2017 2016 Gross intangibles $ 42 $ 37 Accumulated amortization (16) (13) Net intangibles $ 26 $ 24 The Company recognized amortization expense of approximately $3 million for the year ended December 31, 2017 and approximately $1 million for each of the years ended December 31, 2016 and 2015 . The Company will record amortization expense of approximately $3 million for the year ended December 31, 2018 and approximately $1 million for each of the remaining years under the term. Equity method investments. Equity method investments are included in other assets in the Company’s consolidated balance sheets . Income and losses incurred from the Company’s equity investments are recorded in other income (expense) in its consolidated statements of operations. At December 31, 2016, the Company owned a 50 percent membership interest in a midstream joint venture, Alpha Crude Connector, LLC (“ACC”), that constructed a crude oil gathering and transportation system in the N orthern Delaware Basin. The Company’s net investment in ACC was approximately $ 129 million at December 31, 2016 . During th e years ended December 31, 2016 and 2015 , the Company recorded a loss of approximately $ 2 million and $ 4 million, respectively. In February 2017, the Company closed on the divestiture of its ownership interest in ACC. See Note 4 for additional information regarding the disposition of ACC. The Company owns a membership interest in Oryx Southern Delawar e Holdings, LLC (“Oryx”), an entity that operates a crude oil gathering an d transportation system in the S outhern Delaware Basin. During 2017, the Company’s membership interest was reduced from 25 percent to 23.75 percent after the addition of a new partne r. The Company’s net investment was approximately $ 49 million and $ 42 million at December 31, 2017 and 2016 , respectively . During the years ended December 31, 2017 and 2016 , the Company recorded income of appro ximately $ 7 million and a loss of approximately $ 2 million, respectively . Environmental. The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, which are often changing , regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probab le and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash paymen ts is fixed and readily determinable. At December 31, 2017 and 2016 , the Company has accrued approximately $ 3 million and $ 1 million, respectively, related to environmental liabilities. During the years ended December 31, 2017 , 2016 and 2015 , the Company recognized environmental charges of approximately $ 9 million, $ 7 million and $ 3 million, respectively. Senior note deferred loan costs. Senior note de ferred loan costs are stated at cost, net of amortization, which is computed using the effective interest method. The Company had senior n ote deferred loan costs of $ 25 million and $ 31 million, net of accumulated amortization of $ 1 million and $ 12 million, as a reduction of long-term debt at December 31, 2017 a nd 2016 , respectively. See Note 9 for additional information regarding activity related to the Company’s senior notes. Income taxes. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributabl e to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years i n which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance is establis hed to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. The Company evaluates uncertain tax positions for recognition and measurement in the cons olidated financial statements. To recognize a tax position, the Company determines whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based on the te chnical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the consol idated financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of b enefit that is greater than 50 percent likely of b eing realized upon settlement. The Company had no material uncertain tax positions that required recognition in the consolidated financial statements at December 31, 2017 or 2016 . Any interest or pena lties would be recognized as a component of income tax expense. On December 22, 2017, the President of the United States (“the President”) signed into law the tax bill commonly referred to as the “Tax Cuts and Job Act” ( “TCJA”), significantly changing federal income tax laws. According to the Accounting Standards Codification (“ASC”) section 740, “Income Taxes,” (“ASC 740”), a company is required to record the effects of an enacted tax law or rate change in the period of enactment, which is the date the bill is signed by the President and becomes law. As a result of the enactment of the TCJA, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” (“SAB 118”) to provide guidance for companies that have not completed the accounting for the income tax effects of the TCJA in the period of enactment. SAB 118 allows companies to report provisional amounts when based on reason able estimates and to adjust these amounts during a measurement period of up to one year. The Company has elected to apply SAB 118 and, as such, has recorded provisional amounts for the income tax balances reported in its consolidated financial statements. The Company will continue to monitor any new administrative guidance or tax law interpretation. See Note 11 for additional information regarding the Company’s deferred tax balances and its accounting for the impacts of the TCJA. Derivative instruments. The Company recognizes its derivative instruments , other than any commodity derivative contracts that are designated as normal purchase and normal sale, as either assets or liabilities measured at fair value. The Company netted the fair value of derivative instruments by counterparty in the accompanying consolidated balance sheets where the right of offset exists. The Company does not have any derivatives designated as fair value or cash flow hedges. The Company may also enter into physical del ivery contracts to effectively provide commodity price hedges. Because these contracts are not expec ted to be net cash settled, they are considered to be normal sales contracts and not derivatives. Therefore, these contracts are not recorded in the Company ’s consolidated financial statements. Asset retirement obligations. The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the relat ed long-lived asset. Subsequently, the asset retirement cost included in the carrying amount of the related asset is allocated to expense through depletion of the asset. Changes in the liability due to passage of time are generally recognized as an increas e in the carrying amount of the liability and as corresponding accretion expense. Based on certain factors including commodity prices and costs, the Company may revise its previous estimates related to the liability, which would also increase or decrease t he associated oil and natural gas property asset. Treasury stock. Treasury stock purchases are recorded at cost. Revenue recognition. Oil and natural gas revenues are recorded at the time of physical transfer of such products to the purchaser , which for the Company is primarily at the wellhead . The Company follows the sales method of accounting for oil and natural gas sales, recognizing revenues based on the Company’s actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas i mbalances. Oil and n atural gas imbalances are generated on properties for which two or more owners have the right to take production “in-kind” and, in doing so, take more or less than their respective entitled percentage. I mbalances are tracked by well ; ho wever, the Company does not record any receivable from or payable to the other owners unless the imbalance has reached a level at which it exceeds the remaining reserves in the respective well. If reserves are insufficient to offset the imbalance and the C ompany is in an overtake position, a liability is recorded for the amount of shortfall in reserves valued at a contract price or the market price in effect at the time the imbalance is generated. If the Company is in an undertake position, a receivable is recorded for an amount that is reasonably expected to be received, not to exceed the current market value of such imbalance. The Company had no significant imbalances at December 31, 2017 or 2016 . General and administrative expense . The Company receives fees for the operation of jointly-owned oil and natural gas properties during the drilling and production phases and records such reimbursements as reductions of general and administrative expense. Such fees totaled approximately $ 16 million, $ 17 million and $ 19 million for the years e nded December 31, 2017 , 2016 and 2015 , respectively. Stock-based compensation. S tock-based compensation expense is recognized in the Company’ s financial statements on a n accelerated basis over the awards’ vesting periods based on their grant date fair values. S tock-based compensation awards generally vest over a period ranging from one to eight years. The Company utilizes the average of the grant date’s hi gh and low stock price s for the fair value of restricted stock and the Monte Carlo simulation method for the fair value of performance unit awards. Recent ly adopted accounting pronouncements. The Company adopted Accounting Standards Update (“ASU”) No. 2016-09, “Compensation–Stock Compensations (Topic 718): Improvements to Employee Share-based Payment Accounting,” on January 1, 2017. The adoption did not have an impact on prior period consolidated financial statements. The Company elected to account for forfeitures of share-based payments as they occur. At December 31, 2016, the Company had not recorded compensation expense of approximately $8 million based on forecasted forfeitures nor the associated deferred tax benefit of approximately $3 million. Addi tionally, t he Company recognized all excess tax benefits not previously recorded, which totaled approximately $5 million at December 31, 2016. Upon adoption, the Company recorded a cumulative-effect adjustment, which decreased retained earnings by less tha n $1 million, increased additional paid-in capital by approximately $8 million, and de creased net deferred income tax liabilities by approximately $8 million. The Company elected to prospectively classify excess tax benefits and deficiencies as operating a ctivities on the consolidated statements of cash flows and will prospectively record those excess tax benefits and deficiencies as discrete items in the income tax provision in the consolidated statements of operations. Under the new standard, for the year ended December 31, 2017 , the Company recorded excess tax benefits of approximately $ 6 million in the Company’s income tax provision. Also under the new standard, for the year ended December 31 , 2017, the Company recorded actual forfeitures of share- bas ed payments of approximately $ 8 million. New accounting pronouncements issued but not yet adopted . In May 2014, the Financial Accounting Standards Board (the “ FASB ”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlin es a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model prov ides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which deferred the effective date of ASU No. 2014-09 by one year. That ne w standard is now effective for annual reporting periods beginning after December 15, 2017. The Company has completed its evaluation and implementation of ASU No. 2014-09 and will adopt the new revenue recognition guidance during the first quarter of 2018. The Company has elected to use the modified retrospective method for adoption. Upon adoption, the Company will not record a material cumulative effect adjustment and prior period financial statements will not be restated. The adoption of this guidanc e is not expected to have an ongoing material impact on the Company’s financial statements. More specifically, the adoption of this guidance will result in changes to sales of oil and natural gas and operating expenses due to the conclusion that some third -parties meet the definition of an agent under the control model in ASC 606, thus the fees paid to these service providers will be classified as operating expenses under ASC 606. With the adoption, the Company has updated its revenue recognition policy and its related internal control documentation, processes and controls to conform to the new standard. The Company will also expand its revenue recognition related disclosures. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which su persedes current lease guidance. The new lease standard requires all leases with a term greater than one year to be recognized on the balance sheet while maintaining substantially similar classifications for financing and operating leases. Lease expense re cognition on the consolidated statements of operations will be effectively unchanged. This guidance is effective for reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company does not plan to early adopt the standard . The Company enters into lease agreements to support its operations. These agreements are for leases on assets such as office space, vehicles, field services, well equipment and drilling rigs. The Company is substantially complete with the process of revi ewing and determining the contracts to which this new guidance applies. The Company is currently enhancing its accounting system in order to track and calculate additional information necessary for adoption of this standard. The Company believes this new g uidance will have a moderate impact to its consolidated balance sheets due to the recognition of right-of-use assets and lease liabilities that are not currently recognized under currently applicable guidance. In June 2016, the FASB issued ASU No. 2016-1 3, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” methodology for recognizing credit losses with an “expected loss” methodology. This new methodology requ ires that a financial asset measured at amortized cost be presented at the net amount expected to be collected. This standard is intended to provide more timely decision-useful information about the expected credit losses on financial instruments. This gui dance is effective for fiscal years beginning after December 15, 2019, and early adoption is allowed as early as fiscal years beginning after December 15, 2018. The Company does not believe this new guidance will have a material impact on its consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” with the objective of adding guidance to assist in evaluating whether transactions should be accounted fo r as asset acquisitions or as business combinations. The guidance provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the acquired assets is concentrated in a single asset or a group of similar assets, the set is not a business. If the screen is not met, to be considered a business, the set must include an input and a substantive process that together significantly contribute to the ability to create output. This new guidance is effective for annual periods beginning after December 15, 2017, and early adoption is allowed. The Company does not believe this new guidance will have a material impact on its consolidated financial statements. |
