Quarterly report pursuant to Section 13 or 15(d)

ASSET RETIREMENT OBLIGATIONS

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ASSET RETIREMENT OBLIGATIONS
6 Months Ended
Jun. 30, 2021
Asset Retirement Obligation Disclosure [Abstract]  
ASSET RETIREMENT OBLIGATIONS

NOTE 9. ASSET RETIREMENT OBLIGATIONS

 

The Company has a number of oil and gas wells in production and will have Asset Retirement Obligations (“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:

 

      June 30, 2021  
Inflation rate     1.92 - 2.15 %
Estimated asset life     12-21 years  

 

The following table shows the change in the Company’s ARO liability:

 

    Canadian properties     United States properties     Total  
Asset retirement obligations, December 31, 2019   $ 1,445,991     $ 277,373     $ 1,723,364  
Acquisition of Canadian property - Utikuma     906,146             906,146  
Plugging liability at Twin Lakes     -        606,109       606,109  
Accretion expense     259,016       28,742       287,758  
Foreign currency translations     100,756             100,756  
Asset retirement obligations, December 31, 2020     2,711,909       912,224       3,624,133  
Accretion expense     168,699       13,025       181,724  
Foreign currency translation     102,688             102,688  
Asset retirement obligations, June 30, 2021   $ 2,983,296     $ 925,249     $ 3,908,545