Annual report pursuant to Section 13 and 15(d)

Asset Retirement Obligations

Asset Retirement Obligations
12 Months Ended
Dec. 31, 2018
Asset Retirement Obligation Disclosure [Abstract]  
Asset Retirement Obligations



The Company has a number of oil and gas wells in production and will have AROs once the wells are permanently removed from service. The primary obligations involve the removal and disposal of surface equipment, plugging and abandoning the wells and site restoration.


AROs associated with the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets in the period incurred. The fair value of AROs is recognized as of the acquisition date of the working interest. The cost of the tangible asset, including the asset retirement cost, is depleted over the life of the asset. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations discounted at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value. If estimated future costs of AROs change, an adjustment is recorded to both the ARO and the long-lived asset. Revisions to estimated AROs can result from changes in retirement cost estimates, revisions to estimated discount rates and changes in the estimated timing of abandonment.


The Company’s ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs. For the Canadian properties, abandonment and reclamation liabilities are prescribed by the province in which the Company operates in. For the purpose of determining the fair value of AROs incurred during the years presented, the Company used the following assumptions:


      December 31, 2018
Inflation rate     1.92 - 2.15 %

Estimated asset life

    15 - 21 years


The following table shows the change in the Company’s ARO liability for the years ended December 31, 2018 and 2017:


    Canadian properties     United States properties     Total  
Asset retirement obligations, December 31, 2016   $     $ 322,710     $ 322,710  
Additions           101,405       101,405  
Accretion expense           49,753       49,753  
Asset retirement obligations, December 31, 2017           473,868       473,868  
Additions     1,313,982             1,313,982  
Accretion expense     4,353       23,618       27,971  
Disposition           (246,263 )     (246,263 )
Foreign currency translation     (59,936 )           (59,936 )
Asset retirement obligations, December 31, 2018   $ 1,258,399     $ 251,223     $ 1,509,622