3.	Oil and Gas Properties

The Company has acquired interests in certain oil sands properties located in North Central Alberta, Canada. The terms include certain commitments related to oil sands properties that require the payments of rents as long as the leases are non-producing. As of June 30, 2011, Northern’s net payments due in Canadian dollars under this commitment are as follows:


2011	$	11,290
2012	$	45,158
2013	$	45,158
2014	$	45,158
2015	$	45,158
2016	$	45,158
Subsequent	$	134,042

The Government of Alberta owns this land and the Company has acquired the rights to perform oil and gas activities on these lands. If the Company meets the conditions of the 15-year leases the Company will then be permitted to drill on and produce oil from the land into perpetuity. These conditions give the Company until the expiration of the leases to meet the following requirements on its primary oil sands leases:

drill 68 wells throughout the 68 sections; or

drill 44 wells within the 68 sections and having acquired and processed 2 miles of seismic on each other undrilled section.

The Company plans to meet the second of these conditions. As at June 30, 2011, the company has an interest in ten wells, which can be counted towards this obligation.

The Company has identified 2 other wells drilled on these leases, which may be included in the satisfaction of this requirement. The Company has also acquired and processed 25 miles of seismic on the leases.

The Company follows the successful efforts method of accounting for costs of oil and gas properties. Under this method, only those explorations and development costs that relate directly to specific oil and gas reserves are capitalized; costs that do not relate directly to specific reserves are charged to expense. Producing, non-producing and unproven properties are assessed annually, or more frequently as economic events indicate, for potential impairment.

This consists of comparing the carrying value of the asset with the asset’s expected future undiscounted cash flows without interest costs. Estimates of expected future cash flows represent management’s best estimate based on reasonable and supportable assumptions. Proven oil and gas properties are reviewed for impairment on a field-by-field basis. No impairment losses were recognized for the period ended June 30, 2011 (September 30, 2010 - $nil).

Capitalized costs of proven oil and gas properties are depleted using the unit-of-production method when the property is placed in production.

Substantially all of the Company’s oil and gas activities are conducted jointly with others. The accounts reflect only the Company’s proportionate interest in such activities.

On November 26, 2007, the Company entered into a settlement agreement with Signet Energy Inc. and Andora Energy Corporation (at the time “Signet” was a 100% owned subsidiary company of Andora Energy Corporation) and resolved their differences and certain collateral matters. The settlement includes but is not limited to:

The Farmout Agreement dated February 25, 2005, and the Amended Farmout Agreement, being effectively terminated concurrently with the execution of the settlement;

Signet being regarded as having earned a 40% working interest in a total of twelve sections;

Signet transferring registered title to 57.5 unearned sections of the farmout lands, as defined in the Farmout Agreement, back to the Company;

Signet having acknowledged that the Company is not responsible for any royalty assumed by the Company on behalf of Signet in the Farmout Agreement; and

A joint discontinuance of the remaining minor litigation issues amongst all the parties.

On April 30, 2009, 1.5 sections of previously owned leases reverted back to the provincial government.

There was $456,494 of an additional investment made to our oil and gas properties in the nine months ended June 30, 2011.