Accounting Policies, by Policy (Policies)
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12 Months Ended |
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Dec. 31, 2012
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Basis of Accounting, Policy [Policy Text Block] |
Basis of
Presentation
The
accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in
the United States of America ("GAAP") and pursuant to the
accounting and disclosure rules and regulations of the
U.S. Securities and Exchange Commission ("SEC"). A
summary of the significant accounting policies applied in the
preparation of the accompanying financial statements
follows.
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Use of Estimates, Policy [Policy Text Block] |
Management
Estimates—The
preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Significant
estimates made in preparing these financial statements
include asset retirement obligations (Note
7),
income taxes
(Note 8) and
the estimate of proved oil and gas reserves and related
present value estimates of future net cash flows therefrom
(Note 9).
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Reclassification, Policy [Policy Text Block] |
Reclassifications –
Certain amounts previously presented for prior periods have
been reclassified to conform to the current presentation.
The reclassifications had no effect on net loss, working
capital or equity previously reported.
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Cash and Cash Equivalents, Policy [Policy Text Block] |
Cash and Cash
Equivalents—The Company considers all highly
liquid instruments purchased with an original maturity date
of three months or less to be cash equivalents.
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Advertising Costs, Policy [Policy Text Block] |
Advertising
Expense – Advertising
expenses are charged to operations as general and
administrative expenses as incurred.
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Oil and Gas Properties Policy [Policy Text Block] |
Oil and Gas
Properties—The Company follows the full cost
accounting method to account for oil and natural gas
properties, whereby costs incurred in the acquisition,
exploration and development of oil and gas reserves are
capitalized. Such costs include lease acquisition,
geological and geophysical activities, rentals on
nonproducing leases, drilling, completing and equipping of
oil and gas wells and administrative costs directly
attributable to those activities and asset retirement
costs. Disposition of oil and gas properties are accounted
for as a reduction of capitalized costs, with no gain or
loss recognized unless such adjustment would significantly
alter the relationship between capital costs and proved
reserves of oil and gas, in which case the gain or loss is
recognized to operations.
The
capitalized costs of oil and gas properties, excluding
unevaluated and unproved properties, are amortized as
depreciation, depletion and amortization expense using the
units-of-production method based on estimated proved
recoverable oil and gas reserves.
The costs associated with unevaluated and unproved properties, initially excluded from the amortization base, relate to unproved leasehold acreage, wells and production facilities in progress and wells pending determination of the existence of proved reserves, together with capitalized interest costs for these projects. Unproved leasehold costs are transferred to the amortization base with the costs of drilling the related well once a determination of the existence of proved reserves has been made or upon impairment of a lease. Costs associated with wells in progress and completed wells that have yet to be evaluated are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. Costs of dry wells are transferred to the amortization base immediately upon determination that the well is unsuccessful.
All
items classified as unproved property are assessed on a
quarterly basis for possible impairment or reduction in
value. Properties are assessed on an individual basis or as
a group if properties are individually insignificant. The
assessment includes consideration of various factors,
including, but not limited to, the following: intent to
drill; remaining lease term; geological and geophysical
evaluations; drilling results and activity; assignment of
proved reserves; and economic viability of development if
proved reserves are assigned. During any period in which
these factors indicate an impairment, the cumulative
drilling costs incurred to date for such property and all
or a portion of the associated leasehold costs are
transferred to the full cost pool and become subject to
amortization.
Under
full cost accounting rules for each cost center,
capitalized costs of evaluated oil and gas properties,
including asset retirement costs, less accumulated
amortization and related deferred income taxes, may not
exceed an amount (the "cost ceiling") equal to the sum of
(a) the present value of future net cash flows from
estimated production of proved oil and gas reserves, based
on current prices and operating conditions, discounted at
ten percent (10%), plus (b) the cost of properties not
being amortized, plus (c) the lower of cost or
estimated fair value of any unproved properties included in
the costs being amortized, less (d) any income tax
effects related to differences between the book and tax
basis of the properties involved. If capitalized costs
exceed this limit, the excess is charged
to operations. For purposes of the ceiling
test calculation, current prices are defined as the
unweighted arithmetic average of the first day of the month
price for each month within the 12 month period prior to
the end of the reporting period. Prices are
adjusted for basis or location
differentials. Unless sales contracts specify
otherwise, prices are held constant for the productive life
of each well. Similarly, current costs are
assumed to remain constant over the entire calculation
period.
Given
the volatility of oil and gas prices, it is reasonably
possible that the estimate of discounted future net cash
flows from proved oil and gas reserves could change in the
near term. If oil and gas prices decline in the future,
even if only for a short period of time, it is possible
that impairments of oil and gas properties could occur. In
addition, it is reasonably possible that impairments could
occur if costs are incurred in excess of any increases in
the present value of future net cash flows from proved oil
and gas reserves, or if properties are sold for proceeds
less than the discounted present value of the related
proved oil and gas reserves.
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Revenue Recognition, Policy [Policy Text Block] |
Revenue
Recognition—
Revenues from the sale of crude oil, natural gas, and
natural gas liquids are recognized when the product is
delivered at a fixed or determinable price, title has
transferred, collectability is reasonably assured and
evidenced by a contract. The Company follows the sales
method of accounting for its oil and natural gas revenue,
so it recognizes revenue on all crude oil, natural gas, and
natural gas liquids sold to purchasers, regardless of
whether the sales are proportionate to its ownership in the
property. A receivable or liability is recognized only to
the extent that the Company has an imbalance on a specific
property greater than the expected remaining proved
reserves.. The
Company had no imbalance positions at December 31, 2012 or
2011. Charges for gathering and transportation are included
in production expenses.
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Asset Retirement Obligations, Policy [Policy Text Block] |
Asset
Retirement Obligations—The Company records a
liability for asset retirement obligations ("ARO")
associated with its oil and gas wells when those assets are
placed in service. The corresponding cost is capitalized as
an asset and included in the carrying amount of oil and gas
properties and is depleted over the useful life of the
properties. Subsequently, the ARO liability is
accreted to its then-present value.
Inherent
in the fair value calculation of an ARO are numerous
assumptions and judgments including the ultimate settlement
amounts, inflation factors, credit adjusted discount rates,
timing of settlement, and changes in the legal, regulatory,
environmental and political environments. To the extent
future revisions to these assumptions impact the fair value
of the existing ARO liability, a corresponding adjustment
is made to the oil and gas property balance. Settlements
greater than or less than amounts accrued as ARO are
recorded as a gain or loss upon settlement.
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Debt, Policy [Policy Text Block] |
Debt
Issuance Costs—Costs
incurred in connection with the issuance of long-term debt
are capitalized and amortized over the term of the related
debt.
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Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] |
Stock-Based
Compensation—
The Company accounts for stock-based compensation to
employees in accordance with FASB ASC 718. Stock-based
compensation to employees is measured at the grant date,
based on the fair value of the award, and is recognized as
expense over the requisite employee service period. The
Company accounts for stock-based compensation to other than
employees in accordance with FASB ASC 505-50. Equity
instruments issued to other than employees are valued at the
earlier of a commitment
date or upon completion of the services, based on the fair
value of the equity instruments, and is recognized as
expense
over the service period. The Company estimates the fair value
of stock-based payments using the Black-Scholes option-pricing
model for common stock options and warrants and the closing
price of the Company’s common stock for common
share issuances. The
Company may grant stock to employees and contractors in
exchange for services rendered. Shares are vested upon grant,
but restricted for a period of six months from the date of
grant.
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Income Tax, Policy [Policy Text Block] |
Income
Taxes— Income
Taxes—Income taxes are accounted for pursuant to
ASC 740, Income
Taxes, which requires recognition of deferred
income tax liabilities and assets for the expected future tax
consequences of events that have been recognized in the
Company’s financial statements or tax returns. The
Company provides for deferred taxes on temporary differences
between the financial statements and tax basis of assets
using the enacted tax rates that are expected to apply to
taxable income when the temporary differences are expected to
reverse. Valuation allowances are established when necessary
to reduce deferred income tax assets to the amount expected
to be realized.
Uncertain
tax positions are recognized in the financial statements
only if that position is more likely than not of being
sustained upon examination by taxing authorities, based on
the technical merits of the position. The Company
recognizes interest and penalties related to uncertain tax
positions in the income tax provision. There are
currently no unrecognized tax benefits that if recognized
would affect the tax rate. There was no interest
or penalties recognized for the twelve months ended
December 31, 2012.
The
Company is required to file federal income tax returns in
the United States and in various state and local
jurisdictions. The Company's tax returns filed since the
2009 tax year are subject to examination by taxing
authorities in the jurisdictions in which it operates in
accordance with the normal statutes of limitations in the
applicable jurisdiction.
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Earnings Per Share, Policy [Policy Text Block] |
Earnings
(Loss) Per Share—Basic earnings (loss) per
share have been calculated based upon the weighted-average
number of common shares outstanding. The weighted-average
number of common shares outstanding used in the
computations of earnings (loss) per share was 14,110,459
for 2012 and 10,820,600 for 2011.
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Concentration Risk, Credit Risk, Policy [Policy Text Block] |
Concentration
of Credit Risk—The
Company is subject to credit risk resulting from the
concentration of its oil and natural gas receivables with
significant purchasers. One purchaser accounted for all of
the Company's oil and gas sales revenues for 2012 (there were
no oil and gas sales in 2011). The Company does not require
collateral. While the Company believes its recorded
receivable will be collected, in the event of default the
Company would follow normal collection procedures. The
Company does not believe the loss of this purchaser would
materially impact its operating results as oil and gas are
fungible products with well-established markets and numerous
purchasers.
At times,
the Company maintains deposits in federally insured financial
institutions in excess of federally insured limits.
Management monitors the credit ratings and concentration of
risk with these financial institutions on a continuing basis
to safeguard cash deposits.
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Fair Value of Financial Instruments, Policy [Policy Text Block] |
Fair
Value Measurements—The
carrying value of cash and cash equivalents, accounts
receivable, and accounts payable, as reflected in the balance
sheets, approximate fair value because of the short-term
maturity of these instruments.
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New Accounting Pronouncements, Policy [Policy Text Block] |
Recent
Accounting Pronouncements
The
Company has evaluated all the recent accounting
pronouncements through the filing date and believes that none
of them will have a material effect on the Company.
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