Supplemental Oil and Gas Information (Unaudited) | Note 19. Supplemental Oil and Gas Information (Unaudited) Oil and Natural Gas Reserves Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures. Proved reserves are those quantities of oil and natural gas that by analysis of geoscience and engineering data can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. Proved reserves are, with respect to WHR II, prepared by WHR II and audited by Cawley, its independent reserve engineer. With respect to Esquisto, the proved reserves were prepared by Cawley, its independent reserve engineer, for 2015. Esquisto’s proved reserves for 2016 were internally prepared and audited by Cawley. All proved reserves are located in the United States and all prices are held constant in accordance with SEC rules. For the Year Ended December 31, 2016 2015 2014 Oil ($/Bbl) West Texas Intermediate(1) $ 42.75 $ 46.79 $ 91.48 NGL ($/Bbl) West Texas Intermediate(1) $ 42.75 $ 46.79 $ 91.48 Natural Gas ($/Mmbtu) Henry Hub(2) $ 2.48 $ 2.59 $ 4.35 (1) The unweighted average West Texas Intermediate price was adjusted by lease for quality, transportation fees, and a regional price differential. (2) The unweighted average Henry Hub price was adjusted by lease for energy content, compression charges, transportation fees, and regional price differentials. The following tables set forth estimates of the net reserves as of December 31, 2016, 2015 and 2014, respectively: For the Year Ended December 31, 2016 Oil (MBbls) Gas (MMcf) NGL (MBbls) Equivalent (MBoe) Proved developed and undeveloped reserves: Beginning of the year 36,650 344,959 8,897 103,040 Extensions, discoveries and additions 18,870 32,782 2,606 26,940 Purchase of minerals in place 26,835 13,545 1,823 30,916 Production (1,848 ) (17,820 ) (471 ) (5,289 ) Revision of previous estimates 6,940 (48,364 ) (1,981 ) (3,102 ) End of year 87,447 325,102 10,874 152,505 Proved developed reserves: Beginning of year 7,503 142,990 2,235 33,570 End of year 19,192 145,880 3,765 47,270 Proved undeveloped reserves: Beginning of year 29,147 201,969 6,662 69,470 End of year 68,255 179,222 7,109 105,235 For the Year Ended December 31, 2015 Oil (MBbls) Gas (MMcf) NGL (MBbls) Equivalent (MBoe) Proved developed and undeveloped reserves: Beginning of the year 222 249,787 324 42,177 Balance at inception of common control (February 17, 2015) 7,400 6,183 1,637 10,068 Extensions, discoveries and additions 27,598 143,338 5,976 57,464 Purchase of minerals in place 1,972 4,296 710 3,398 Production (968 ) (14,847 ) (351 ) (3,794 ) Revision of previous estimates 426 (43,798 ) 601 (6,273 ) End of year 36,650 344,959 8,897 103,040 Proved developed reserves: Beginning of year 222 122,780 324 21,009 End of year 7,503 142,990 2,235 33,570 Proved undeveloped reserves: Beginning of year — 127,007 — 21,168 End of year 29,147 201,969 6,662 69,470 For the Year Ended December 31, 2014 Oil (MBbls) Gas (MMcf) NGL (MBbls) Equivalent (MBoe) Proved developed and undeveloped reserves: Beginning of the year 175 210,293 — 35,224 Extensions and discoveries 63 4,318 573 1,356 Purchase of minerals in place 17 13,684 — 2,298 Production (31 ) (9,388 ) (41 ) (1,637 ) Revision of previous estimates (2 ) 30,880 (208 ) 4,936 End of year 222 249,787 324 42,177 Proved developed reserves: Beginning of year 175 97,734 — 16,464 End of year 222 122,780 324 21,009 Proved undeveloped reserves: Beginning of year — 112,559 — 18,760 End of year — 127,007 — 21,168 Noteworthy amounts included in the categories of proved reserve changes in the above tables include: • During 2016, extensions, discoveries and additions increased proved reserves by 4,131 MBoe and 22,809 MBoe related to drilling in the RCT field in Louisiana and Eagle Ford, respectively. • During 2016, purchase of minerals in place of 30,916 MBoe was primarily attributable to the Burleson North Acquisition. • During 2016, we had downward revisions of proved reserves of 3,102 MBoe, of which 711 MBoe related to commodity price changes and 2,391 MBoe was performance related. • During 2015, extensions, discoveries and additions increased proved reserves by 20,881 MBoe related to drilling in the RCT field in Louisiana by our predecessor. For the period from February 17, 2015 to December 31, 2015, extensions and discoveries increased proved reserves by 36,583 MBoe related to drilling in the Eagle Ford horizons in Burleson County, Texas by the previous owner. • For the period from February 17, 2015 to December 31, 2015, purchase of minerals in place by the previous owner of 3,398 MBoe was primarily attributable to the producing wells acquired from a subsidiary of Comstock Resources, Inc. in July 2015. • During 2015, our predecessor had downward revisions of proved reserves of 7,450 MBoe, of which 3,410 MBoe related to commodity price changes and 4,040 MBoe related to downward revisions resulting from technical changes. For the period from February 17, 2015 to December 31, 2015, revisions of previous estimates attributable to the previous owner were primarily due to operational efficiencies gained through increased experience in the Eagle Ford area (increase of approximately 1,315 MBoe) partially offset by decreased commodity prices which decreased the useful lives of the wells, decreasing ultimate reserves recovered (decrease of approximately 139 MBoe). • During 2014, extensions, discoveries and additions increased proved reserves by 1,356 MBoe related to drilling two horizontal wells in East Texas by our predecessor. • During 2014, our predecessor acquired 2,298 MBoe of proved reserves, of which 1,888 MBoe was for non-core • During 2014, our predecessor had upward performance revisions to total proved reserves of 4,937 MBoe, of which 3,043 MBoe related to gas processing, 1,405 MBoe related to lease operating expense reductions and 517 MBoe related to changes in commodity prices, partially offset by a reduction of 28 MBoe due to changes in ownership interest. See Note 3 for additional information on acquisitions and divestitures. A variety of methodologies are used to determine our proved reserve estimates. The principal methodologies employed are reservoir simulation, decline curve analysis, volumetric, material balance, advance production type curve matching, petro-physics/log analysis and analogy. Some combination of these methods is used to determine reserve estimates in substantially all of our fields. Standardized Measure of Discounted Future Net Cash Flows from Proved Reserves As required by the FASB and SEC, the standardized measure of discounted future net cash flows presented below is computed by applying first-day-of-the-month year-end first-day-of-the-month The standardized measure of discounted future net cash flows is as follows: For the Year Ended December 31, 2016 2015 2014 Future cash inflows $ 4,434,117 $ 2,851,021 $ 1,167,732 Future production costs (1,220,067 ) (866,253 ) (420,781 ) Future development costs (1,146,632 ) (741,798 ) (147,809 ) Future income tax expense (442,285 ) (216 ) (563 ) Future net cash flows for estimated timing of cash flows 1,625,133 1,242,754 598,579 10% annual discount for estimated timing of cash flows (1,082,092 ) (790,824 ) (368,680 ) Standardized measure of discounted future net cash flows $ 543,041 $ 451,930 $ 229,899 Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves The following is a summary of the changes in the standardized measure of discounted future net cash flows for the proved oil and natural gas reserves during each of the years in the three year period ended December 31, 2016: For the Year Ended December 31, 2016 2015 2014 Beginning of year $ 451,930 $ 229,899 $ 165,181 Balance at inception of common control (February 17, 2015) — 215,544 — Sale of oil and natural gas produced, net of production costs (104,596 ) (60,640 ) (29,498 ) Purchase of minerals in place 188,317 69,258 14,587 Extensions and discoveries 168,796 261,728 20,195 Changes in income taxes, net (206,817 ) 171 (266 ) Changes in prices and costs (57,034 ) (193,130 ) 19,683 Previously estimated development costs incurred 15,067 — 190 Net changes in future development costs 11,985 1,646 (3,194 ) Revisions of previous quantities 3,943 9,827 26,945 Accretion of discount 103,000 41,859 16,522 Change in production rates and other (31,550 ) (124,232 ) (446 ) End of year $ 543,041 $ 451,930 $ 229,899 Capitalized Costs Relating to Oil and Natural Gas Producing Activities The total amount of capitalized costs relating to oil and natural gas producing activities and the total amount of related accumulated depreciation, depletion and amortization is as follows at the dates indicated. For the Year Ended December 31, 2016 2015 2014 Evaluated oil and natural gas properties $ 1,144,857 $ 732,479 $ 247,482 Unevaluated oil and natural gas properties 428,991 251,493 80,058 Accumulated depletion, depreciation and amortization (196,567 ) (117,030 ) (43,539 ) Total $ 1,377,281 $ 866,942 $ 284,001 Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities Costs incurred in property acquisition, exploration and development activities were as follows for the periods indicated: For the Year Ended December 31, 2016 2015 2014 Property acquisition costs, proved $ 230,910 $ 92,010 $ 21,337 Property acquisition costs, unproved 235,652 176,832 69,729 Exploration and extension well costs 72,875 132,138 12,731 Development 63,006 107,651 28,253 Total $ 602,443 $ 508,631 $ 132,050 |