Disclosure About Oil and Gas Producing Activities

12 Months Ended

Dec. 31, 2013

Oil And Gas Exploration And Production Industries Disclosures [Abstract]

DISCLOSURE ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

15.  DISCLOSURE ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED):

The following information about the Company’s oil and natural gas producing activities is presented in accordance with FASB ASC Topic 932, Oil and Gas Reserve Estimation and Disclosures:

A. OIL AND GAS RESERVES:

Our policies and practices regarding internal controls over the recording of reserves is structured to objectively and accurately estimate our oil and gas reserves quantities and present values in compliance with the SEC’s regulations and GAAP. The Vice President – Reservoir Engineering & Development is primarily responsible for overseeing the preparation of the Company’s reserve estimates. He has a Bachelor and Master of Science degree in Petroleum Engineering and is a licensed Professional Engineer with over 19 years of experience. The Company’s internal controls over reserve estimates include reconciliation and review controls, including an independent internal review of assumptions used in the estimation.

The estimates of proved reserves and future net revenue as of December 31, 2013, are based upon the use of technical and economic data including, but not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests. The reserves were estimated using deterministic methods; these estimates were prepared in accordance with generally accepted petroleum engineering and evaluation principles. Standard engineering and geoscience methods, such as reservoir modeling, performance analysis, volumetric analysis and analogy, that were considered to be appropriate and necessary to establish reserve quantities and reserve categorization that conform to SEC definitions and rules and regulations, were also used. As in all aspects of oil and natural gas evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, these estimates necessarily represent only informed professional judgment.

The determination of oil and natural gas reserves is complex and highly interpretive. Assumptions used to estimate reserve information may significantly increase or decrease such reserves in future periods. The estimates of reserves are subject to continuing changes and, therefore, an accurate determination of reserves may not be possible for many years because of the time needed for development, drilling, testing, and studies of reservoirs. From time to time, the Company may adjust the inventory and schedule of its proved undeveloped locations in response to changes in capital budget, economics, new opportunities in the portfolio or resource availability. The Company has not scheduled any proved undeveloped reserves beyond five years nor does it have any proved undeveloped locations that have been part of its inventory of proved undeveloped locations for over five years.

The Company engaged Netherland, Sewell & Associates, Inc. (“NSAI”), a third-party, independent engineering firm, to prepare the reserve estimates for all of the Company’s assets in Wyoming and Pennsylvania for the year ended December 31, 2013 in this annual report. This independent analysis conducted by NSAI represents more than 98%of the Company’s proved reserves. Our internal professional staff works closely with our independent engineers, NSAI, to ensure the integrity, accuracy and timeliness of data that is furnished to them for their reserve estimation process. In addition, other pertinent data is provided such as seismic information, geologic maps, well logs, production tests, well performance data, operating procedures and relevant economic criteria. We make available all information requested, including our pertinent personnel, to the external engineers as part of their evaluation of our reserves. The report of NSAI is included as an Exhibit to this annual report.

The majority of the reserve estimates shown herein have been independently evaluated by Netherland, Sewell & Associates, Inc. (NSAI), a worldwide leader of petroleum property analysis for industry and financial organizations and government agencies.  NSAI was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699. Within NSAI, the technical persons primarily responsible for preparing the estimates set forth in the NSAI reserves report incorporated herein are Mr. Robert C. Barg and Mr. Phillip R. Hodgson.  Mr. Barg has been practicing consulting petroleum engineering at NSAI since 1989.  Mr. Barg is a Licensed Professional Engineer in the State of Texas (No. 71658) and has over 30 years of practical experience in petroleum engineering, with over 24 years’ experience in the estimation and evaluation of reserves.  He graduated from Purdue University in 1983 with a Bachelor of Science Degree in Mechanical Engineering.  Mr. Hodgson has been practicing consulting petroleum geology at NSAI since 1998.  Mr. Hodgson is a Licensed Professional Geoscientist in the State of Texas, Geology (No. 1314) and has over 29 years of practical experience in petroleum geosciences, with over 15 years’ experience in the estimation and evaluation of reserves.  He graduated from University of Illinois in 1982 with a Bachelor of Science Degree in Geology and from Purdue University in 1984 with a Master of Science Degree in Geophysics.  Both technical principals meet or exceed the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; both are proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.

The Company closed on its acquisition of assets in Utah on December 12, 2013. Due to the timing of this acquisition relative to the timing of preparing annual corporate reserves, the Company’s Reservoir Engineering Department prepared the proved reserve estimates for its Utah assets. The proved reserve estimates were estimated in accordance with the Company’s internal controls and SEC regulations. Furthermore, the reserves estimated for the Utah assets are limited to proved developed wells as of December 31, 2013 and represent less than 2% of the proved reserves disclosed in this report.

Since January 1, 2013, no crude oil or natural gas reserve information has been filed with, or included in any report to, any federal authority or agency other than the SEC and the Energy Information Administration (“EIA”) of the U.S. Department of Energy. We file Form 23, including reserve and other information, with the EIA.

The following unaudited tables as of December 31, 2013, 2012, and 2011 reflect estimated quantities of proved oil and natural gas reserves for the Company and the changes in total proved reserves as of December 31, 2013, 2012 and 2011. All such reserves are located in the Green River Basin in Wyoming, the Appalachian Basin of Pennsylvania and the Uinta Basin in Utah.

B. ANALYSES OF CHANGES IN PROVEN RESERVES:

	United States
	Oil	Natural Gas
	(MBbls)	(MMcf)
Reserves, December 31, 2010	31,684	4,200,155
Extensions, discoveries and additions	7,425	1,452,122
Production	(1,408)	(236,832)
Revisions	(4,620)	(636,891)
Reserves, December 31, 2011	33,081	4,778,554
Extensions, discoveries and additions	5,435	819,896
Production	(1,282)	(249,310)
Revisions	(19,097)	(2,382,695)
Reserves, December 31, 2012	18,137	2,966,445
Extensions, discoveries and additions	11,329	1,409,528
Acquistions	10,114	-
Production	(1,196)	(224,912)
Revisions	(4,265)	(741,319)
Reserves, December 31, 2013	34,119	3,409,742
	United States
	Oil	Natural Gas
	(MBbls)	(MMcf)
Proved:
Developed	11,013	1,678,697
Undeveloped	20,671	2,521,458
Total Proved - 2010	31,684	4,200,155
Developed	11,794	1,973,391
Undeveloped	21,287	2,805,163
Total Proved - 2011	33,081	4,778,554
Developed	10,531	1,820,994
Undeveloped	7,606	1,145,451
Total Proved - 2012	18,137	2,966,445
Developed	20,566	1,777,267
Undeveloped	13,553	1,632,475
Total Proved - 2013	34,119	3,409,742

C. STANDARDIZED MEASURE:

The following table sets forth a standardized measure of the estimated discounted future net cash flows attributable to the Company’s proved natural gas reserves. Natural gas prices have fluctuated widely in recent years. The calculated weighted average sales prices utilized for the purposes of estimating the Company’s proved reserves and future net revenues at December 31, 2013, 2012 and 2011 was $3.51, $2.63 and $4.04 per Mcf, respectively, for natural gas and $84.97, $87.85 and $88.19 per barrel, respectively, for oil and condensate, based upon the average of the price in effect on the first day of the month for the preceding twelve month period.

The future production and development costs represent the estimated future expenditures to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expense was computed by applying statutory income tax rates to the difference between pretax net cash flows relating to the Company’s proved reserves and the tax basis of proved properties and available operating loss carryovers.

		As of December 31,
		2013		2012		2011
Future cash inflows	$	14,861,131	$	9,380,970	$	22,196,913
Future production costs		(4,540,209)		(3,217,771)		(6,113,282)
Future development costs		(2,014,751)		(1,661,394)		(4,294,375)
Future income taxes		(1,897,340)		(733,855)		(3,340,516)
Future net cash flows		6,408,831		3,767,950		8,448,740
Discount at 10%		(3,220,862)		(1,873,633)		(4,652,684)
Standardized measure of discounted
future net cash flows	$	3,187,969	$	1,894,317	$	3,796,056

The estimate of future income taxes is based on the future net cash flows from proved reserves adjusted for the tax basis of the oil and gas properties but without consideration of general and administrative and interest expenses.

D. SUMMARY OF CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASHFLOWS:

		December 31,
		2013		2012		2011
Standardized measure, beginning	$	1,894,317	$	3,796,056	$	3,525,568
Net revisions of previous quantity estimates		(1,089,316)		(2,516,159)		(964,987)
Extensions, discoveries and other changes		2,098,644		858,951		2,173,103
Acquisition of reserves		86,196		-		-
Changes in future development costs		(252,992)		952,067		(741,658)
Sales of oil and gas, net of production costs		(720,826)		(625,745)		(896,434)
Net change in prices and production costs		1,204,041		(2,912,698)		108,108
Development costs incurred during the
period that reduce future development costs		171,149		316,394		464,880
Accretion of discount		226,326		529,696		499,358
Net changes in production rates and other		145,289		363,788		(338,982)
Net change in income taxes		(574,859)		1,131,967		(32,900)
Aggregate changes		1,293,652		(1,901,739)		270,488
Standardized measure, ending	$	3,187,969	$	1,894,317	$	3,796,056

There are numerous uncertainties inherent in estimating quantities of proved reserves and projected future rates of production and timing of development expenditures, including many factors beyond the control of the Company. The reserve data and standardized measures set forth herein represent only estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers often vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimates. Accordingly, reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. Further, the estimated future net revenues from proved reserves and the present value thereof are based upon certain assumptions, including geologic success, prices, future production levels and costs that may not prove correct over time. Predictions of future production levels are subject to great uncertainty, and the meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions upon which they are based. Historically, oil and natural gas prices have fluctuated widely.

E. COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES:

			Years Ended December 31,
			2013		2012		2011
	United States
	Property Acquisitions:
	Unproved	$	424,540	$	47,979	$	91,983
	Proved		224,410		-		-
	Exploration*		184,007		199,569		746,085
	Development		186,755		587,618		675,718
	Total	$	1,019,712	$	835,166	$	1,513,786
	* Exploration costs (as defined in Regulation S-X) includes costs spent on development of unproved reserves in the Pinedale Field.
F. RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES:
			Years Ended December 31,
			2013		2012		2011
	United States
	Oil and gas revenue	$	933,404	$	809,974	$	1,101,796
	Production expenses		(212,578)		(184,229)		(205,363)
	Depletion and depreciation		(243,390)		(388,985)		(346,394)
	Ceiling test and other impairments		-		(2,972,464)		-
	Income taxes		(2,821)		662,698		(197,464)
	Total	$	474,615	$	(2,073,006)	$	352,575
G. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES:
			December 31,
			2013		2012
	Proven Properties:
	Acquisition, equipment, exploration, drilling and
	environmental costs	$	7,817,374	$	7,235,765
	Less: accumulated depletion, depreciation and amortization		(5,808,836)		(5,578,265)
			2,008,538		1,657,500
	Unproven Properties:
	Acquisition and exploration costs not being amortized		413,073		-
		$	2,421,611	$	1,657,500