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Oil and Gas Properties

3 Months Ended

Mar. 31, 2016

Note 3 - Oil and Gas Properties

The following table sets forth information concerning the Company’s oil and gas properties:

	March 31, 2016			December 31, 2015
Proved oil and gas properties at cost, net of impairment	$	8,431,283		$	8,683,273
Unproved oil and gas properties at cost, net of impairment		154,972			154,836
Accumulated depreciation, depletion and amortization		(3,378,000	)		(3,223,000	)
Oil and gas properties, net	$	5,208,255		$	5,615,109

During the three month period ended March 31, 2016 and 2015, the Company recorded depletion expense of $155,000 and $202,225, respectively. The Company recorded impairment expense of $252,000 and $0 for the three months ended March 31, 2016 and 2015, respectively.

Acquisitions

In 2011, the Company entered into a purchase and sale agreement (“DNR and Tindall PSA”) and other related agreements and documents with Tucker Family Investments, LLLP, which is refered to as “Tucker”; DNR Oil & Gas, Inc. which is refered to as “DNR”; and Tindall Operating Company, which is refered to as “Tindall”, and collectively are refered to as the “Sellers”, for the purchase of certain oil and gas operating properties in Colorado, Kansas, Wyoming, and Montana. DNR is owned primarily by an officer and director of the Company, Charles B. Davis, and he is an affiliate of Tucker and Tindall. The consideration for the purchase was determined by bargaining between management of the Company and Mr. Davis, and the Company used reports of independent engineering firms to analyze the purchase price. The base purchase price was paid in full on September 29, 2011.

On January 19, 2016, but effective December 31, 2015, (the "Effective Date") the Company entered into a Settlement Agreement with Tucker, DNR and Tindall regarding the DNR and Tindall PSA and other related matters. In consideration of the amounts indicated below, the parties (i) terminated Exhibits C and C-2 to the DNR and Tindall PSA for all purposes; (ii) extinguished all liabilities of the Company under Exhibit C of the DNR and Tindall PSA including $250,000 related to the increase in oil prices after the acquisition; (iii) agreed that the promissory note of $792,151 due to DNR (See Note 7 – Notes and Advances Payable) and accrued interest thereon was paid in full; and (iv) released each other against any and all claims which have been raised or could have been raised among them. Specifically, Exhibits C and C-2 to the DNR and Tindall PSA related to potential payments that would have needed to have been made by the Company in the event oil prices increased to certain levels and related to certain payments to have been made by the Company in the event it sold certain properties purchased under the DNR and Tindall PSA. Exhibits C and C-2 were terminated and extinguished (including any amounts owed thereunder including an alleged amount of $250,000 under Exhibit C to the DNR and Tindall PSA) in exchange for 25 fully paid nonassessable restricted shares of our 7% Series A2 Convertible Preferred Stock. Consideration to pay the above promissory note in full consisted of the issuance to DNR of 65 fully paid, nonassessable restricted shares of its 7% Series A2 Convertible Preferred Stock, and paying DNR $303,329 in cash, which was paid during the three month period ended March 31, 2016. A description of the terms of the 7% Series A2 Convertible Preferred Stock, including its terms of conversion into shares of the Company's common stock is set forth below in Note 6 - Stock transactions and preferred stock dividends. The Company recorded an expense of $141,099 included in other operating expense in the statement of operations at December 31, 2015, as a result of this transaction. At March 31, 2016, the Company’s only remaining liabilities to DNR are related to oil and gas operations and are in Accounts payable – DNR Oil & Gas, Inc. on the balance sheet.

On December 30, 2015, the Company completed an asset acquisition pursuant to a purchase and sale agreement executed on November 25, 2015, but effective December 1, 2015 (the "Wellstar Purchase and Sale Agreement ") with Wellstar Corporation (the "Seller"), an unaffiliated corporation. The assets acquired were producing oil and gas leases in Sumner County, Kansas and Kimball County, Nebraska (collectively, the "Properties" and individually, the "Padgett Properties" and the "Nebraska Properties"). The Company acquired 51% of Seller's interest (ranging from 47% to 100% of the working interests) in the Padgett Properties and acquired 100% of the Seller's interest (100% of the working interests) in the Nebraska Properties for aggregate consideration of $1,100,000 and the issuance of 1,000,000 shares of the Company's restricted common stock valued at $0.10 per share at the date of closing, or $100,000.