Description Of Business And Significant Accounting Policies (Policy)

12 Months Ended

Dec. 31, 2017

Description Of Business And Significant Accounting Policies [Abstract]

Principles Of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).  The consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries after elimination of all significant intercompany transactions and balances.

Use Of Estimates

Use of Estimates

The accompanying consolidated financial statements are prepared in conformity with U.S. GAAP which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Significant estimates include reserve quantities and estimated future cash flows associated with proved reserves, which significantly impact depletion expense and potential impairments of oil and natural gas properties, income taxes and the valuation of deferred tax assets, stock-based compensation and commitments and contingencies.  We analyze our estimates based on historical experience and various other assumptions that we believe to be reasonable. While we believe that our estimates and assumptions used in preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition

Revenues are recognized based on actual volumes of oil, natural gas, methane gas, and electricity sold to purchasers at a fixed or determinable price, when delivery has occurred and title has transferred, and collectability is reasonably assured.Crude oil is stored and at the time of delivery to the purchasers, revenues are recognized.  There were no natural gas imbalances at December 31, 2017 or December 31, 2016.  Methane gas and electricity sales meters are located at the Carter Valley landfill site and sales of electricity are recognized each month based on metered volumes.  No methane gas was sold during the years ended December 31, 2017 or December 31, 2016.  Effective January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers.  The Company does not expect this to have a material impact on our consolidated financial statements or results of operations.

Cash And Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents include temporary cash investments with a maturity of ninety days or less at date of purchase.

Inventory

Inventory

Inventory consists of crude oil in tanks and is carried at lower of cost or market value.  The cost component of the oil inventory is calculated using the average quarterly per barrel cost for the quarter ended December 31, 2017 and December 31, 2016, which includes production costs and taxes, allocated general and administrative costs, depletion, and allocated interest cost.  The market component is calculated using the average December 2017 and December 2016 oil sales price for the Company’s Kansas properties.  In addition, the Company also carried equipment and materials to be used in its Kansas operation and is carried at the lower of cost or market value.  The cost component of the equipment and materials inventory represents the original cost paid for the equipment and materials.  The market component is based on estimated sales value for similar equipment and materials at the end of each year.  At December 31, 2017 and December 31, 2016, inventory consisted of the following (in thousands):

	December 31,
	2017		2016
Oil – carried at lower of cost or market	$	436	$	505
Equipment and materials – carried at market		105		122
Total inventory	$	541	$	627

During 2016, the Company recorded an $88,000 impairment of its equipment and materials inventory.  This impairment was a result of a 2016 decrease in the estimated sales value for similar equipment.

Oil And Gas Properties

Oil and Gas Properties

The Company follows the full cost method of accounting for oil and gas property acquisition, exploration, and development activities.  Under this method, all costs incurred in connection with acquisition, exploration, and development of oil and gas reserves are capitalized.  Capitalized costs include lease acquisitions, seismic related costs, certain internal exploration costs, drilling, completion, and estimated asset retirement costs. The capitalized costs of oil and gas properties, plus estimated future development costs relating to proved reserves and estimated asset retirement costs which are not already included net of estimated salvage value, are amortized on the unit-of-production method based on total proved reserves. The Company has determined its reserves based upon reserve reports provided by LaRoche Petroleum Consultants Ltd. since 2009. The costs of unproved properties are excluded from amortization until the properties are evaluated, subject to an annual assessment of whether impairment has occurred.  The Company had $0 and $106,000 in unevaluated properties as of December 31, 2017 and 2016, respectively.  Proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs unless such sales cause a significant change in the relationship between costs and the estimated value of proved reserves, in which case a gain or loss is recognized.

At the end of each reporting period, the Company performs a “ceiling test” on the value of the net capitalized cost of oil and gas properties. This test compares the net capitalized cost (capitalized cost of oil and gas properties, net of accumulated depreciation, depletion and amortization and related deferred income taxes) to the present value of estimated future net revenues from oil and gas properties using an average price (arithmetic average of the beginning of month prices for the prior 12 months) and current cost discounted at 10%  plus cost of properties not being amortized and the lower of cost or estimated  fair value of unproven properties included in the cost being amortized (ceiling). If the net capitalized cost is greater than the ceiling, a write-down or impairment is required.  A write-down of the carrying value of the asset is a non-cash charge that reduces earnings in the current period.  Once incurred, a write-down may not be reversed in a later period.

Asset Retirement Obligation

Asset Retirement Obligation

An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in the period incurred, with an associated increase in the carrying amount of the related long-lived asset, our oil and natural gas properties. The cost of the tangible asset, including the asset retirement cost, is depleted over the useful life of the asset. The asset retirement obligation is recorded at its estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligation discounted at our credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. Accretion expense is recorded as “Production costs and taxes” in the Consolidated Statements of Operations.  If the estimated future cost of the asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the long-lived asset. Revisions to estimated asset retirement obligations can result from changes in retirement cost estimates, revisions to estimated inflation rates, and changes in the estimated timing of abandonment.

Manufactured Methane Facilities

Manufactured Methane Facilities

The Manufactured Methane facilities were placed into service in April 2009 and were being depreciated using the straight-line method over the useful life based on the estimated landfill closure date of December 2041.  The Company sold all its methane facility assets, except the applicable U.S. patent, on January 26, 2018.

Other Property And Equipment

Other Property and Equipment

Other property and equipment is carried at cost.  The Company provides for depreciation of other property and equipment using the straight-line method over the estimated useful lives of the assets which range from two to seven years.  Net gains or losses on other property and equipment disposed of are included in operating income in the period in which the transaction occurs.

Stock-Based Compensation

Stock-Based Compensation

The Company records stock-based compensation to employees based on the estimated fair value of the award at grant date.  We recognize expense on a straight line basis over the requisite service period. For stock-based compensation that vests immediately, the Company recognizes the entire expense in the quarter in which the stock-based compensation is granted.  The Company recorded compensation expense of $14,000 in 2017, $17,000 in 2016,  and$12,000 in 2015.

Accounts Receivable

Accounts Receivable

Accounts receivable consist of uncollateralized joint interest owner obligations due within 30 days of the invoice date, uncollateralized accrued revenues due under normal trade terms, generally requiring payment within 30 days of production, and other miscellaneous receivables. No interest is charged on past-due balances. Payments made on accounts receivable are applied to the earliest unpaid items. We review accounts receivable periodically and reduce the carrying amount by a valuation allowance that reflects our best estimate of the amount that may not be collectible. An allowance was recorded at December 31, 2017 and 2016.  At December 31, 2017 and 2016, accounts receivable consisted of the following (in thousands):

	December 31,
	2017		2016
Revenue	$	570	$	476
Joint interest		23		21
Other		29		7
Allowance for doubtful accounts		(14)		(14)
Total accounts receivable	$	608	$	490

Income Taxes

Income Taxes

Income taxes are reported in accordance with U.S. GAAP, which requires the establishment of deferred tax accounts for all temporary differences between the financial reporting and tax bases of assets and liabilities, using currently enacted federal and state income tax rates.  In addition, deferred tax accounts must be adjusted to reflect new rates if enacted into law.

At December 31, 2017, federal net operating loss carryforwards amounted to approximately $30.2 million which expire between 2019 and 2036. The net total deferred tax asset was $242,000 at December 31, 2017 and $0 at 2016.  In 2017, The Company released a portion of the allowance related to the Company’s Minimum Tax Credit (“MTC”) as a result of the 2017 Tax Act.  The Company recorded an allowance on the remaining deferred tax asset at December 31, 2017 primarily due to cumulative losses incurred during the 3 years ended December 31, 2017.  The Company recorded a full allowance against the deferred tax asset at December 31, 2016 primarily due to cumulative losses incurred during the 3 years ended December 31, 2016.

Realization of deferred tax assets is contingent on the generation of future taxable income.  As a result, management considers whether it is more likely than not that all or a portion of such assets will be realized during periods when they are available, and if not, management provides a valuation allowance for amounts not likely to be recognized.

Management periodically evaluates tax reporting methods to determine if any uncertain tax positions exist that would require the establishment of a loss contingency.  A loss contingency would be recognized if it were probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated.

The amount recognized is subject to estimates and management’s judgment with respect to the likely outcome of each uncertain tax position.  The amount that is ultimately incurred for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized.

Concentration Of Credit Risk

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.  Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.

The Company’s primary business activities include oil sales to a limited number of customers in the state of Kansas.  The related trade receivables subject the Company to a concentration of credit risk.  The Company sells a majority of its crude oil primarily to two customers in Kansas.  Although management believes that customers could be replaced in the ordinary course of business, if the present customers were to discontinue business with the Company, it may have a significant adverse effect on the Company’s projected results of operations.

Revenue from the top three purchasers accounted for 75.3%,  13.1%, and 11.0% of total revenues for year ended December 31, 2017.  Revenue from the top three purchasers accounted for 73.9%,  13.1%, and 12.0% of total revenues for year ended December 31, 2016.  Revenue from the top three purchasers accounted for 74.5%,  16.1%, and 8.6% of total revenues for year ended December 31, 2015.  As of December 31, 2017 and 2016, two of the Company’s oil purchasers accounted for 76.2% and 84.1%, respectively of accounts receivable, of which one oil purchaser accounted for 63.2% and 71.0%, respectively.

Earnings Per Common Share

Earnings per Common Share

The Company reports basic earnings per common share, which excludes the effect of potentially dilutive securities, and diluted earnings per common share which include the effect of all potentially dilutive securities unless their impact is anti-dilutive. The following are reconciliations of the numerators and denominators of the Company’s basic and diluted earnings per share, (in thousands except for share and per share amounts):

	For the years ended December 31,
	2017		2016		2015
Income (numerator):
Net loss	$	(574)	$	(4,199)	$	(24,721)
Weighted average shares (denominator):
Weighted average shares - basic		10,081,218		6,091,028		6,084,241
Dilution effect of share-based compensation, treasury method		—		—		—
Weighted average shares - dilutive		10,081,218		6,091,028		6,084,241
Loss per share – Basic and Dilutive:
Basic	$	(0.06)	$	(0.69)	$	(4.06)
Dilutive	$	(0.06)	$	(0.69)	$	(4.06)

For the years ended December 31, 2016 and 2015, 114 and 760 shares, respectively, were excluded from dilutive shares as they would have been anti-dilutive.  The 114 and 760 shares excluded from the dilutive share calculation represents shares calculated using the treasury method for options issued to the Company’s directors in which the exercise price was lower than the average market price each quarter.  In addition, options issued to the Company’s directors in which the exercise price was higher than the average market price each quarter was also excluded from diluted shares as they would have been anti-dilutive.

Fair Value Of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payables, accrued liabilities and long term debt approximates fair value as of December 31, 2017 and 2016.

Derivative Financial Instruments

Derivative Financial Instruments

The Company uses derivative instruments to manage our exposure to commodity price risk on sales of oil production.  The Company does not enter into derivative instruments for speculative trading purposes.  The Company presents the fair value of derivative contracts on a net basis where the right to offset is provided for in our counterparty agreements.  As of December 31, 2017 and 2016, the Company did not have any open derivatives.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation with no effect on net income.