4.Property, Plant and Equipment

Property, plant and equipment (“PP&E”) is stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful service life of the asset.

PP&E consists of the following:

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Asset Exchanges

During the six months ended June 30, 2022, we completed multiple nonmonetary transactions. The transactions included exchanges of wells, facilities, permits and other assets. The total net book value of the divested assets and liabilities was $3.8 million. The acquired assets were recorded at a total fair value of $3.2 million, which resulted in a total pre-tax loss of $0.6 million.

Assets Held for Sale

During the first quarter of 2022, management committed to a plan to sell certain of our assets located in the Midland Basin and determined that these assets met all the criteria for classification as assets held for sale. We anticipate these assets will be sold in the second half of 2022. These assets have been re-measured at their fair values less costs to sell, which resulted in the recognition of pre-tax impairment expense of $15.6 million during the first quarter of 2022. We estimated the fair value of the assets using indicative bids, which were representative of a Level 2 fair value measurement. The assets are included in assets held for sale in the condensed consolidated balance sheet at June 30, 2022, and we have ceased recording depreciation on the assets.

Abandoned Assets

In June 2022, management determined that two previously acquired saltwater disposal wells (“SWD wells”) were no longer economically beneficial to the operations of the Company due to required workover costs and determined that the SWD wells should be shut-in and taken out of service. Accordingly, we have removed the cost and the associated accumulated depreciation and recognized a charge of $4.2 million for the remaining book value of the SWD wells. The charge has been reflected in abandoned well costs in the condensed consolidated statements of operations for the three and six months ended June 30, 2022.

In late second quarter 2022, management removed the cost of a well that was under construction in Texas. The well had encountered technical difficulties during the drilling phase and progress on the well was stopped. Management’s evaluation of the well determined that abandoning the asset was the most prudent course of action. Accordingly, we have removed the cost of the asset and recognized a charge of $1.6 million, which is reflected in abandoned well costs in the condensed consolidated statements of operations for the three and six months ended June 30, 2022.