Related Party Cost Reductions

9 Months Ended

Sep. 30, 2013

Related Party Cost Reductions

9. Related Party Cost Reductions

In connection with the property acquisition agreement entered into in the third quarter of 2011 with DNR Oil & Gas, Inc. (“DNR”), the Company executed an operating agreement whereby DNR provides services to operate all of the properties acquired by the Company for a monthly fee of $23,000. DNR is an affiliate of Charles B. Davis, an Executive Officer and Director of the Company. The operating agreement expired on March 31, 2012 and renews on a month to month basis. Based on operator costs for the properties prior to the Company’s acquisition, approximately $8,000 per month is included in lease operating expenses and $15,000 per month is included in related party consulting fees in the accompanying Consolidated Statements of Operations for the first quarter of 2012. Effective July 1, 2012, the monthly operator fee was reduced to $18,000 per month, of which $8,000 per month is included in lease operating expense and the remaining $10,000 per month is included in related party consulting fees.

Effective July 1, 2012 the Company reduced the amount paid for director fees and other related party consulting arrangements. Presented below is a comparison of the impact of related party cost reductions for the nine months ended September 30, 2012 compared to the same period for 2013:

	Nine Months Ended:
	9/30/12		9/30/13		Reduction
Fees payable in cash:
Operator fees	$	192,000	$	162,000	$	30,000
Consulting fees		30,000		—		30,000
Fees payable in shares of common stock:
Director fees		61,875		1,800		60,075
Consulting fees		90,000		—		90,000

If these cost reductions had not been implemented for the nine months ended September 30, 2013, the Company’s net income applicable to common stockholders would have decreased from $2,934,849 to $2,724,769 and net income per share applicable to common stockholders would have decreased from $0.30 to $0.28.