ASSET RETIREMENT OBLIGATION

12 Months Ended

Dec. 31, 2012

Asset Retirement Obligations

Asset Retirement Obligation Disclosure [Text Block]

NOTE O – ASSET RETIREMENT OBLIGATION

The Company records an asset retirement obligation (ARO) when the total depth of a drilled well is reached and the Company can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs.  The Company records the ARO liability on the consolidated balance sheets and capitalizes a portion of the cost in “Oil and natural gas properties” during the period in which the obligation is incurred.  In general, the amount of an ARO and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date and adjusted for the Company’s credit risk.  This amount is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company.  After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds.  The additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis.

In the third quarter of 2012 the Company re-evaluated its method of plugging abandoned wells and determined by doing so in-house it could lower the cost. Based upon the Company’s current calculations we have established a sufficient reserve, for accounting purposes, to plug the existing wells when necessary. 

(in thousands)	2012		2011
Asset retirement obligation, January 1	$	2,702	$	2,573
Acquisition of oil and gas properties		-		-
Revisions in the estimated cash flows		-		-
Liability incurred upon acquiring and drilling wells		-		-
Liability settled upon plugging and abandoning wells		-		-
Accretion of discount expense		68		129
Asset retirement obligation, December 31	$	2,770	$	2,702