Annual report pursuant to section 13 and 15(d)

NOTE 10. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

NOTE 10. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

12 Months Ended

Dec. 31, 2013

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

Oil and Gas Exploration and Production Industries Disclosures [Text Block]

NOTE 10. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development. Amounts reported as costs incurred include both capitalized costs and costs charged to expense during the year for oil and gas property acquisition, exploration and development activities. Costs incurred also include new asset retirement obligations established in the current year, as well as increases or decreases to the asset retirement obligations resulting from changes to cost estimates during the year. Exploration costs presented below include the costs of drilling and equipping successful exploration wells, as well as dry hole costs, leasehold impairments, geological and geophysical expenses, and the costs of retaining undeveloped leaseholds. Development costs include the costs of drilling and equipping development wells, and construction of related production facilities.

	Fiscal Year Ended December 31, 2013		Fiscal Year Ended December 31, 2012
Property acquisitions
Unevaluated	$	-	$	-
Evaluated		-		475,000
Exploration		-		106,109
Development		756,219		1,617,526
Total Costs Incurred	$	756,219	$	2,198,635

Capitalized costs. Capitalized costs include the cost of properties, equipment and facilities for oil and natural-gas producing activities. Capitalized costs for proved properties include costs for oil and natural-gas leaseholds where proved reserves have been identified, development wells, and related equipment and facilities, including development wells in progress. Capitalized costs for unproved properties include costs for acquiring oil and gas leaseholds and geological and geophysical expenses where no proved reserves have been identified.

	December 31, 2013			December 31, 2012
Capitalized costs
Unevaluated properties	$	-			$	72,950
Evaluated properties		2,954,854				2,125,685
		2,954,854				2,198,635
Less: Accumulated DD&A		(102,091	)			(28,291	)
Net capitalized costs	$	2,852,763			$	2,170,344

Oil and Gas Reserve Information. Mire and Associates, Inc., an independent engineering firm, prepared the estimates of the proved reserves, future production, and income attributable to the leasehold interests as of December 31, 2013 and Nova Resource, Inc. prepared the 2012 reserves report. The estimated proved net recoverable reserves presented below include only those quantities that were expected to be commercially recoverable at prices and costs in effect at the balance sheet dates under the then existing regulatory practices and with conventional equipment and operating methods. Proved Developed Reserves represent only those reserves estimated to be recovered through existing wells. Proved Undeveloped Reserves include those reserves that may be recovered from new wells on undrilled acreage or from existing wells on which a relatively major expenditure for recompletion or secondary recovery operations is required. All of the Company's Proved Reserves are located onshore in the continental United States of America.

Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider unproved reserves, anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is subjective and imprecise.

The following table sets forth estimates of the proved oil and gas reserves (net of royalty interests) for the Company and changes therein, for the periods indicated.

	Oil
	(Bbls)

December 31, 2011		-
Revisions of prior estimates		-
Purchases of reserves in place		220,995
Production		(1,381	)
December 31, 2012		219,614
Revisions of prior estimates		(8,537	)
Purchases of reserves in place		18,991
Production		(3,468	)
December 31, 2012		226,600

	December 31, 2013		December 31, 2012

Estimated Quantities of Proved Developed Reserves – Oil (Bbls)		29,900		59,971
Estimated Quantities of Proved Undeveloped Reserves – Oil (Bbls)		196,700		159,643

Standardized Measure of Discounted Future Net Cash Flows. The Standardized Measure related to proved oil and gas reserves is summarized below. Future cash inflows were computed by applying a twelve month average of the first day of the month prices to estimated future production, less estimated future expenditures (based on year end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expense. Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows, less the tax basis of properties involved. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value or the present value of the Company.

Standardized Measure of Oil and Gas

The following table sets forth the changes in standardized measure of discounted future net cash flows relating to proved oil and gas reserves for the periods indicated.

	December 31, 2012

Future cash inflows	$	20,863,274
Future production costs		(13,343,179	)
Future development costs		(2,400,000	)
Future income taxes		-

Future net cash flows		5,120,095
Discount of future net cash flows at 10% per annum		(679,338	)

Standardized measure of discounted future net cash flows	$	4,440,757

	December 31, 2013

Future cash inflows	$	21,168,740
Future production costs		(7,050,170	)
Future development costs		(2,060,100	)
Future income taxes		-

Future net cash flows		12,058,470
Discount of future net cash flows at 10% per annum		(4,091,920	)

Standardized measure of discounted future net cash flows	$	7,966,550

Changes in standardized measure of discounted future cash flows
	12/31/13			12/31/12

Beginning of year		4,440,757			-
Sales and transfers of oil & gas produced, net of production costs		(144,845	)		(51,254	)
Net changes in prices and production costs		808,717			-
Development costs incurred		829,168			-
Changes in estimated future development costs		316,612			-
Acquisitions of minerals in place, net of production costs		1,183,256			4,492,011
Revision of previous estimates		(180,497	)		-
Change in discount		444,076			-
Change in production rate or other		269,306			-

End of year		7,966,550			4,440,757