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Disclosure About Oil and Gas Producing Activities
 12 Months Ended
Dec. 31, 2014
Oil And Gas Exploration And Production Industries Disclosures [Abstract]  
DISCLOSURE ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

16.  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 Director – Reservoir Engineering & Development is primarily responsible for overseeing the preparation of the Company’s reserve estimates. He has a Bachelor of Science degree in Petroleum Engineering and is a licensed Professional Engineer with over 13 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, 2014, 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 for the year ended December 31, 2014 in this annual report. For the year ended December 31, 2013, the Company engaged NSAI to prepare the reserve estimates for all of the Company’s assets in Wyoming and Pennsylvania in this annual report. Due to the timing of the closing of the acquisition in Utah in December 2013 relative to the timing of preparing annual corporate reserves, the Company’s Reservoir Engineering Department prepared the proved reserve estimates for its Utah assets for the year ended December 31, 2013, which were prepared in accordance with the Company’s internal controls and SEC regulations and represented less than 2% of estimated proved reserves as of December 31, 2013. The Company engaged NSAI to prepare the reserve estimates for all of the Company’s assets for the year ended December 31, 2012 in this annual report.

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 reserves estimates shown herein have been independently evaluated by 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, a Licensed Professional Engineer in the State of Texas (No. 71658), has been practicing consulting petroleum engineering at NSAI since 1989 and has over 6 years of prior industry experience.  He graduated from Purdue University in 1983 with a Bachelor of Science Degree in Mechanical Engineering.  Mr. Hodgson, a Licensed Professional Geoscientist in the State of Texas, Geology (No. 1314), has been practicing consulting petroleum geoscience at NSAI since 1998 and has over 14 years of prior industry experience.  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.

Since January 1, 2014, no crude oil, natural gas or NGL 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, 2014, 2013, and 2012 reflect estimated quantities of proved oil and natural gas reserves for the Company and the changes in total proved reserves as of December 31, 2014, 2013 and 2012. All such reserves are located in the Green River Basin in Wyoming, the Uinta Basin in Utah and the Appalachian Basin of Pennsylvania.

B. ANALYSES OF CHANGES IN PROVEN RESERVES:

United States
OilNatural GasNGLs
(MBbls)(MMcf)(MBbls)
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 -
Extensions, discoveries and additions 34,275 866,513 210
Sales - (239,290) -
Acquistions 9,381 1,345,964 21,740
Production (3,409) (228,517) -
Revisions (6,600) (323,218) 43
Reserves, December 31, 2014 67,766 4,831,194 21,993
United States
OilNatural GasNGLs
(MBbls)(MMcf)(MBbls)
Proved:
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 -
Developed 28,481 2,245,004 9,118
Undeveloped 39,285 2,586,190 12,875
Total Proved - 2014 67,766 4,831,194 21,993

Changes in proved developed reserves: During 2014, substantially all of our extensions and discoveries in the proved developed category were attributable to wells drilled in 2014. Proved developed reserves increased associated with reserves acquired in the SWEPI Transaction (see Note 13) and partially offset by the Pennsylvania Properties divested in the SWEPI Transaction.

Changes in proved undeveloped reserves: The changes to the Company’s proved undeveloped reserves (PUDs) during 2014 include updates to prior PUDs, the addition of new PUDs associated with current development plans, the transfer of PUDs to unproved categories due to development plan changes, and the impact of changes in economic conditions, including changes in commodity prices. The Company’s year-end development plans and associated PUDs are consistent with SEC guidelines for PUD development within five years. The Company annually reviews all PUDs to ensure an appropriate plan for development exists. Additionally, proved undeveloped reserves increased associated with reserves acquired in the SWEPI Transaction (see Note 13).

NGLs: As part of the SWEPI Transaction, the Company acquired contracts related to NGLs providing the opportunity to realize the benefit of the NGLs from the gas it produces beginning in 2017.

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 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, 2014, 2013 and 2012 was $4.32, $3.51 and $2.63 per Mcf, respectively, for natural gas, and $80.62, $84.97 and $87.85 per barrel, respectively, for oil and condensate. As part of the SWEPI Transaction, the Company acquired contracts related to NGLs providing the opportunity to realize the benefit of the NGLs from the gas it produces beginning in 2017. For 2014, the average sales price utilized for purposes of estimating the Company’s proved reserves and future net revenues associated with NGLs was $46.27 per barrel. The prices utilized in the reserve report are based upon the average of prices 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,
201420132012
Future cash inflows$ 27,331,391 $ 14,861,131 $ 9,380,970
Future production costs (8,627,657) (4,540,209) (3,217,771)
Future development costs (3,859,385) (2,014,751) (1,661,394)
Future income taxes (3,898,355) (1,897,340) (733,855)
Future net cash flows 10,945,994 6,408,831 3,767,950
Discount at 10% (5,712,511) (3,220,862) (1,873,633)
Standardized measure of discounted
future net cash flows$ 5,233,483 $ 3,187,969 $ 1,894,317

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 CASH FLOWS:

December 31,
201420132012
Standardized measure, beginning$ 3,187,969 $ 1,894,317 $ 3,796,056
Net revisions of previous quantity estimates (603,795) (1,089,316) (2,516,159)
Extensions, discoveries and other changes 1,787,643 2,098,644 858,951
Sales of reserves in place (398,506) - -
Acquisition of reserves 2,552,491 86,196 -
Changes in future development costs (1,013,652) (252,992) 952,067
Sales of oil and gas, net of production costs (949,389) (720,826) (625,745)
Net change in prices and production costs 1,010,052 1,204,041 (2,912,698)
Development costs incurred during the
period that reduce future development costs 342,987 171,149 316,394
Accretion of discount 413,177 226,326 529,696
Net changes in production rates and other (175,419) 145,289 363,788
Net change in income taxes (920,075) (574,859) 1,131,967
Aggregate changes 2,045,514 1,293,652 (1,901,739)
Standardized measure, ending$ 5,233,483 $ 3,187,969 $ 1,894,317

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,
201420132012
United States
Property Acquisitions:
Unproved$ 26,106 $ 424,540 $ 47,979
Proved895,179 224,410 -
Exploration* 197,664 184,007 199,569
Development 382,984 186,755 587,618
Total$ 1,501,933 $ 1,019,712 $ 835,166
* 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,
201420132012
United States
Oil and gas revenue$ 1,230,020 $ 933,404 $ 809,974
Production expenses (280,631) (212,578) (184,229)
Depletion and depreciation (292,951) (243,390) (388,985)
Ceiling test and other impairments - - (2,972,464)
Income tax benefit (expense) 3,736 (2,821) 662,698
Total$ 660,174 $ 474,615 $ (2,073,006)
G. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES:
December 31,
20142013
Proven Properties:
Acquisition, equipment, exploration, drilling and
environmental costs$ 9,731,407 $ 7,817,374
Less: accumulated depletion, depreciation and amortization (6,094,764) (5,808,836)
3,636,643 2,008,538
Unproven Properties:
Acquisition and exploration costs not being amortized 242,294 413,073
$ 3,878,937 $ 2,421,611