| 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 d the accounts of a variable interest en tity (“VIE”) where the Company wa s the primary beneficiary of the arrangements until the VIE structure dissolved in January 2018. See Note 5 for additional information regarding the circumstanc es 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 2018 presentation. These reclassifications had no impact on net income (loss), total assets, liabilities and stockholders’ equity or total cash flows. Use of estimates in the preparation of financial statements. Preparation of financial statements in conformity with GAAP 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 these 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 rates 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, goodwi ll, fair value of stock-based compensation , fair value of business combinations, 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 original 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 limi ts of the Federal Deposit Insurance Corporation. However, management believes that the Company’s counterparty risks are minimal based on the reputation and history of the institutions selected. 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. Joint interest receivables are general ly 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 in terest 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 date. Past due accounts are generally w ritten 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 $ 5 million and $ 1 million for the years ended December 31, 2018 and 2017 , respectively . 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 weighted av erage cost or net realizable value . 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 developed reserves. The Company recognized depletion expense of $ 1.5 billion, $ 1.1 billion and $ 1.1 billion during the years ended December 31, 2018 , 2017 and 2016 , 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 are 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 large 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 determination o n its commercial viability. In these instances, the project ’ s feasibility is not contingent upon price improvements or advances in technology, but rather the Company’s ongoing efforts and expenditures related to accurately predicting the hydrocarbon recove rability based on well information, gaining access to other companies’ production, transportation or processing facilities and/or getting partner approval to drill additional appraisal wells. 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 exploratory well costs. Proceeds from the sales of individual properties and the capitalized costs of individual properties sold or abandoned 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 disposition is significant enough to materially impact the depletion rate of the remaining p roperties 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 t he related project is completed. The Company capitalizes interest on expenditures for significant development projects until such projects are ready for their intended use. During the years ended December 31, 2018 and 2017 , the Company had capitalize d interest of approximately $ 9 million and $ 3 million, respectively. The Company did not have capitalized interest related to significant oil and natural gas development projects for the year ended December 31, 2016 . The Co mpany reviews its long-lived assets to be held and used, including proved oil and natural gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum o f the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. The Com pany 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 flo ws) of the properties and integrated assets would be recognized at 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 develo pment and production, expected future commodity prices, capital expenditures and production costs and cash flows from integrated assets. The Company did not recognize impairment expense during the years ended December 31, 2018 and 2017. The Company recogni zed impairment expense of approximately $ 1.5 billion during the year ended December 31, 2016 related to its proved oil and natural gas properties. See Note 8 for additional information regarding the Company’s impairment expense. Unproved oil and natural gas properties are periodically assessed for impairment by considering future drilling and exploration plans, results of exploration activities, commodity price outlooks, planned future sales and expiration of all or a portion of t he projects. During the years ended December 31, 2018 , 2017 and 2016 , the Company recognized expense of approximately $ 35 million, $ 27 million and $ 50 million, respectively, related to abandoned and expiring acre age, 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, tele communications 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 assets ranging from two to 39 years. The Company had other capital assets of $ 308 million and $ 234 million, net of accumulated depreciation of $ 109 million and $ 90 million, at December 31, 2018 and December 31, 2017 , respectively. During the years ended December 31, 2018 , 2017 and 2016 , the Company recognized depreciation expense of $ 22 million, $ 21 million and $ 21 million, respectively. Goodwill. As a result of the RSP Acquisition, as defined in Note 4 , the Company has goodwill in the amount of $ 2.2 billion at December 31, 2018 . Goodwill is not amortized but assessed for impairment on an annual basis, or more frequently if indicators of impairment exist. Impairment tests, which involve the use of estimates related to the fair market value of the business operations with which goodwill is associated, are performed as of July 1 of each year. The balance of goodwill is alloc ated in its entirety to the Company’s one reporting unit. When testing goodwill for impairment, the Company first performs a qualitative analysis to determine if it is more likely than not that the fair value of its reporting unit is less than its carrying value. If the analysis shows that the fair value is more likely than not less than the carrying value, then the Company performs a quantitative impairment test. The Company early adopted Accounting Standards Update (“ASU”) No. 2017-04, “Intangibles – Good will and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). Per ASU 2017-04, if the results of the quantitative test are such that the fair value of the reporting unit is less than the carrying value, goodwill is reduced by a n amount that is equal to the amount by which the carrying value of the reporting unit exceeds the fair value. Because of the recent decline in the price of oil and the volatility of the Company’s common stock, the Company performed an analysis at December 31, 2018 and determined that it was not more likely than not that the fair value of its reporting unit was less than its carrying value. As a result, the Company did not recognize impairment expense during the year ended December 31, 2018 . Equity method investments . The Company accounts for its equity method investments under the equity method of accounting and includes the investment balance in other assets on the consolidated balance sheets. Gains and losses incurred from the Company’s equity investments are recorded in other income (expense) on the consolidated statements of operations . At December 31, 2018, the Company owned a 23.75 percent membership interest in Oryx Southern Delaware Holdings, LLC (“Oryx”), an entity that operates a crude oil gathering and transportation system in the Delaware Basin. In February 2018, Oryx obtained a term loan of $800 million. The proceeds were used in part to fund a cash distribution to its equity holders, of which the Company received a distributi on of approximately $157 million. Of this amount, approximately $54 million fully offset the Company’s net investment in Oryx. The remaining distribution of approximately $103 million was recorded in other income (expense) on the Company’s consolidated sta tement of operations since the lenders to the term loan do not have recourse against the Company, and the Company has no contractual obligation to repay the distribution. The Company’s net investment in Oryx was zero and ap proximately $49 million at Dece mber 31, 2018 and 2017 , respectively . The Company recorded income of approximately $ 4 million and $ 7 million for the years ended December 31, 2018 and 2017 , respectively. The Company will not record income or loss o n the Oryx investment until such net income is greater than the distribution in excess of its investment. On December 26 , 2018, the Company contributed certain infrastructure assets to WaterBridge Operating LLC (“WaterBridge”), an entity that op erates and manages various water infrastructure asse ts located in the Permian Basin, in exchange f or, among other consideration, 100,000 Series A-1 Preferred Units (“Preferred Units”). The Preferred Units contain certain redemption rights, incentives and restrict ions, as specified in the agreement. The Company accounts for the investment using the equity method. In conjunction with the transaction, the Company entered into a water management services agreement with WaterBridge. The Company had no amount s due to Wa terBridge at December 31, 2018 . The Company’s investment in WaterBridge is recorded in other assets in the Company’s consolidated balance sheets. In February 2017, the Company closed on the divestiture of its 50 percent membership interest in a midst ream joint venture, Alpha Crude Connector, LLC (“ACC”), that constructed a crude oil gathering and transportation system in the Delaware Basin. See Note 5 for additional information regarding the disposition of ACC. Regulatory and e nvironmental c ompliance . 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. Regulatory liabilities relate to acquisitions where additional equipment is necessary to have facilities compliant with local, state and federal obligat ions and are capitalized. E nvironmental e xpenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures that are noncapital in nature are recorded when environ mental assessment and/or remediation is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments is fixed and readily determinable. Environmental liabilities normally involve estimat es that are subject to revisions until settlement occurs. See Note 11 for additional information. Litigation contingencies . The Company is a party to proceedings and claims incidental to its business. In each reporting period, the Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. The amount of any resulting losses may differ from these estimates. An accrual is recorded for a material loss contingency when its occurrence is probable and damages are reasonably estimable. See Note 11 for additional information. Income taxes. The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable 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 in 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 established 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 an y 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 amoun t of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of b eing realized upon settlement. At December 31, 2018 , the Company had unrecognized tax benefits of approx imately $ 63 million, primarily related to research and development credits. If all or a portion of the unrecognized tax benefit is sustained upon examination by the taxing authorities, the tax benefit will be recognized as a reduction to the Compa ny’s deferred tax liability and will affect the Company’s effective tax rate in the period recognized. The timing as to when the Company will substantially resolve the uncertainties associated with the unrecognized tax benefit is uncertain. The Company has not recognized any interest or penalties relating to unrecognized tax benefits in its consolidated financial statements. Any interest or penalties 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,” (“AS C 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 E xchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) 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 allowed companies to report provisional amounts when based on reasonable estimates and to adjust these amounts during a measurement period of up to one year. The Company elected to apply SAB 118 and, as such, recorded provisional amounts for the income tax balances reported in its consolidated financial statements at December 31, 2017. At December 31, 2018 , the Company completed its accounting for all tax effects of the TCJA and made an adjustment to its pr ovisional amounts related to the deductibility of certain compensation based on available regulatory and interpretive guidance. See Note 12 for additional information regarding the Company’s deferred tax balances and the impacts of the TCJA. Deriva tive instruments. The Company recognizes its derivative instruments , other than commodity derivative contracts that are designated as normal purchase and normal sale contracts, as either assets or liabilities measure d at fair value. The Company nets the fair value of the derivative instruments by counterparty in the accompanying c onsolidated balance sheets when the right of offset exists. The Company does not have any derivatives designated as fair value or cash flow hedges. The Company may also ente r into physical delivery 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 reco rded in the Company’s c onsolidated balance sheets . 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 related oil and natural gas property 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 rec ognized as an increase in the carrying amount of the liability through accretion expense. Based on certain factors, including commodity prices and costs, the Company may revise its previous estimates of the liability, which would also increase or decrease the related oil and natural gas property asset . Treasury stock. Treasury stock purchases are recorded at cost. Revenue recognition. On January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers,” (“ASC 606”) using the modified retrospective approach, which only applies to contracts that were not completed as of the date of initial application. The adoption did not require an adjustment to opening retained earnings for the cumulative effect adjustment and does not have a material impact on the Company’s reported net income (loss), cash flows from operations or statement of stockholders’ equity. The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them disaggregated on the Company’s consolidated statements of operations. All revenues are recognized in the geographical region of the Permian Basin. Prior to the adoption of ASC 606, the Company recorded oil and natural gas revenues at the time of physical t ransfer of such products to the purchaser, which for the Company is primarily at the wellhead. The Company followed the sales method of accounting for oil and natural gas sales, recognizing revenues based on the Company’s actual proceeds from the oil and n atural gas sold to purchasers. The Company enters into contracts with customers to sell its oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606. Specific ally, revenue is recognized when the Company’s performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser. Control is generally considered transferred when th e following criteria are met: (i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production. At December 31, 2018 , the Company had receivables related to contracts with customers of approximately $ 466 million. The following table shows the impact of the adoption of ASC 606 on the Company’s current period results as compared to the previous revenue recognition standard, ASC Topic 605, “Revenue recognition” (“ASC 605”): Year Ended December 31, 2018 Under Under Increase (in millions) ASC 606 ASC 605 (Decrease) Operating revenues: Oil sales $ 3,443 $ 3,432 $ 11 Natural gas sales 708 674 34 Operating costs and expenses: Oil and natural gas production 590 600 (10) Gathering, processing and transportation 55 - 55 Net income $ 2,286 $ 2,286 $ - Oil Contracts. The majority of the Company’s oil marketing contracts transfer physical custody and title at or near the wellhead, which is generally when control of the oil has been transferred to the purchaser. The majority of the oil produced is sold under contracts u sing market-based pricing which is then adjusted for differentials based upon delivery location and oil quality. To the extent the differentials are incurred after the transfer of control of the oil, the different ials are included in o il sales on the statements of operations as they represent part of the transaction price of the contract. If the differentials, or other related costs, are incurred prior to the transfer of control of the oil, those costs are included in g athering, processing and transportation on the Company’s consolidated statement s of operations as they represent payment for services performed outside of the contract with the customer. Natural Gas Contracts. The majority of the Company’s natural g as is sold at the lease location, which is generally when control of the natural gas has been transferred to the purchaser. The natural gas is sold under (i) percent age of proceeds processing contr acts, (ii) fee-based contracts or ( iii) a hybrid of percent age of proceeds and fee-based contracts. Un der the majority of the Company’s contracts, the purchaser gathers the natural gas in the field where it is produced and transports it via pipeline to natural gas processing plants where natural gas liquid product s are extracted. The natural gas liquid products and remaining residue gas are then sold by the purchaser. Under the percentage of proceeds and hybrid percentage of proceeds and fee-based contracts, the Company receives a percentage of the value for the ex tracte d liquids and the residue gas. Under the fee - based contracts, the Company receives natural gas liquids and residue gas value, less the fee component, or is invoiced the fee component. To the extent control of the natural gas transfers upstream of the transportation and processing activities, revenue is recognized as the net amount r eceived from the purchaser. To the extent that control transfers downstream of those costs, revenue is recognized on a gross basis, and the related costs are classified in g athering, processing and transportation on the Company’s consolidated statements of operations. The Company does not disclose the value of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in acc ordance with ASC 606. Th e exemption , as described in ASC 606-10-50-14(a), applies to variable consideration that is recognized as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation , future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. General and administrative expense. The Company receives fees for the operation of jointly-owned oil and natura l gas properties during the drilling and production phases and records such reimbursements as reductions of general and administrative expense. Such fees totaled approximately $ 19 million, $ 16 million and $ 17 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. Stock-based compensation . Stock-based compensation expense is recognized in the Company’s financial statements on an accelerated basis over the awards’ vesting periods based on their grant date fair values. Stock-based compensation awards vest over a period generally ranging from one to five years. The Company utilizes the average of the high and low stock prices at each grant date to determine the fair value of restricted stock and the M onte Carlo simulation method to determine the fair value of performance unit awards. The Company recognizes forfeitures on stock-based compensation awards as they occur. When the Company adopted ASU No. 2016-09, “Compensation–Stock Compensation ( Topic 718): Improvements to Employee Share-based Payment Accounting,” (“ASU 2016-09”) on January 1, 2017, it recorded a cumulative effect adjustment, which decreased retained earnings by less than $1 million, increased additional paid-in capital by approxi mately $8 million and decreased net deferred income tax liabilities by approximately $8 million. Recently adopted accounting pronouncements . In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, which simplifies how a n entity subsequently measures goodwill by eliminating Step 2 from the goodwill impairment test. In place of Step 2, an entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; howev er, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The Company early adopt ed this standard beginning in the third quarter of 2018. The adoption of this standard did not have an impact on the Company’s fi nancial results. 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 for 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 conce ntrated 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 abilit y to creat e output. The Company adopted this standard on January 1, 2018. See Notes 4 and 5 for information regarding the Company’s significant acquisitions and divestitures. New accounting pronouncements issued but not yet adopted . In February 2016 , the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which supersedes 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 substanti ally similar classifications for financing and operating leases. Lease expense recognition on the consolidated statements of operations will be effectively unchanged. This guidance is effective for reporting periods beginning after December 15, 2018. The C ompany mad e policy elections to not capitalize short-term leases for all asset classes and to not separate non-lease components from lease components for all asset classes except for vehicles. The Company also plans to not elect the package of practical ex pedients that allows for certain considerations under the original “Leases (Topic 840)” accounting standard (“Topic 840”) to be carried forward upon adoption of ASU 2016-02. The Company enters into lease agreements to support its operations. These agreem ents are for leases on assets such as office space, vehicles, well equipment and drilling rigs . The Company has completed the process of reviewing and determining the contracts to which this new guidance applies. Upon adoption, on January 1, 2019, the Comp any recognize d approximately $35 million of right-of-use assets , of which approximately $19 million and $16 million relate to the Company’s operating and financing leases, respectively, and approximately $37 million of associated lease liabilities that are not currently recognized under applicable guidance. In January 2018, the FASB issued |
