CAPITALIZED DRILLING COSTS AND OIL AND GAS PROPERTIES

9 Months Ended

Dec. 31, 2022

Capitalized Drilling Costs And Oil And Gas Properties

CAPITALIZED DRILLING COSTS AND OIL AND GAS PROPERTIES

NOTE 6: CAPITALIZED DRILLING COSTS AND OIL AND GAS PROPERTIES

As noted, under Rule 4-10 (c)(2) of Regulation S-X, the Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under the full cost method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Under Rule 6(i) of Regulation S-X, disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

Capitalized Drilling Costs

In January 2021, the Company commenced a drilling program on their Deshotel 24H well included in their proved reserves. Depletion expense for the nine months ended December 31, 2022 and 2021 for the capitalized drilling costs was $122,838 and $510,196, respectively. The Company capitalized $214,197 in drilling costs related to the Peabody 12A #18 well in the three months ended December 31, 2022. As of December 31, 2022, the capitalized drilling costs were $494,408.

Oil and Gas Properties

Activity in the current year consist of the following:

For the nine months ended December 31, 2022, the Company received proceeds of $999,999 whereby they recognized $405,052 in gains on the assignments of wells of $1,078,104 that contained plugging liabilities of $684,679. There was a percentage of the Deshotel 24H well in the assignment that resulted in a reduction of the capitalized drilling costs of $201,525 in this transaction. 

On October 6, 2022, the Company assigned 10% of their working interest in the Harry O’Neal 20-9 well to two related parties, pursuant to the vesting of various performance conditions in the employment contracts of Mr. Randy May and Mr. Jay Puchir. There were no recognized reserves booked for this well.

On October 10, 2022, the Company entered into a settlement agreement with a Harry O’Neal working interest owner whereby they granted them a 50% working interest in the Harry O’Neal 20-9 well in exchange for a full release of claims from all prior investments. There were no recognized reserves booked for this well.

The following table summarizes the Company’s oil and gas activities by classification for the periods ended December 31, 2022 and 2021.

Activity Category	March 31, 2022			Adjustments (1)			December 31, 2022
Proved Developed Producing Oil and Gas Properties
Cost	$	4,915,968		$	(2,231,401	)	$	2,684,567
Accumulated depreciation, depletion and amortization		(3,225,527	)		991,724			(2,233,803	)
Changes in estimates		-			-			-
Total	$	1,690,441		$	(1,239,677	)	$	450,764
Undeveloped and Non-Producing Oil and Gas Properties
Cost	$	4,936,352		$	(28,266	)	$	4,908,086
Changes in estimates		-			-			-
Total	$	4,936,352		$	(28,266	)	$	4,908,086
Grand Total	$	6,626,793		$	(1,267,944	)	$	5,358,850

Activity Category	March 31, 2021			Adjustments (1)			December 31, 2021
Proved Developed Producing Oil and Gas Properties
Cost	$	7,223,379		$	-		$	7,223,379
Accumulated depreciation, depletion and amortization		(739,037	)		(928,604	)		(1,667,641	)
Changes in estimates		-			-			-
Total	$	6,484,342		$	(928,604	)	$	5,555,738
Undeveloped and Non-Producing Oil and Gas Properties
Cost	$	5,868,137		$	303,500		$	6,171,637
Changes in estimates		-			-			-
Total	$	5,868,137		$	303,500		$	6,171,637
Grand Total	$	12,352,479		$	(625,104	)	$	11,727,375

(1) Relates to dispositions of reserves, and depletion expenses.