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v2.4.0.6
Supplemental Financial Information for Oil and Gas Producing Activities
12 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Supplemental Financial Information for Oil and Gas Producing Activities

 

11. SUPPLEMENTAL FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES

 

Oil and Gas Reserves

 

Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” natural gas and crude oil reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.

 

In January 2010, the FASB issued ASC Topic No. 932 to amend existing oil and gas reserve accounting and disclosure guidance to align its requirements with the SEC’s Modernization of Oil and Gas Reporting rule. The significant revisions involve revised definitions of oil and gas producing activities, changing the pricing used to estimate reserves at period end to a twelve month arithmetic average of the first day of the month prices and additional disclosure requirements. In contrast to the SEC rule, the FASB does not permit the disclosure of probable and possible reserves in the supplemental oil and gas information in the notes to the financial statements. The amendments are effective for annual reporting periods ending on or after December 31, 2009. Application of the revised rules is prospective and companies are not required to change prior period presentation to conform to the amendments. Application of the amended guidance has only resulted in changes to the prices used to determine proved reserves. The new guidelines have also expanded the definition of proved undeveloped reserves that can be recorded from an economic producer.

 

The opportunity to prove reasonable certainty for spacing areas located more than one direct development spacing area from economic producer did not impact the Company’s proved developed or undeveloped reserves.

 

As of March 31, 2012, the Company adopted the guidance in ASC 932 related to oil and gas reserve estimation and disclosures in conjunction with the year-end reserve reporting as a change in accounting principle that is inseparable from a change in accounting estimate. The impact of the adoption of this guidance on the Company’s financial statements was not practicable to estimate due to the challenges associated with computing a cumulative effect of adoption by preparing reserve reports under both the old and new guidance.

 

Oil and Gas Producing Activities

Estimates of total proved reserves for the producing Cochran #1 Well At March 31, 2012 and 2011, were based on December 2009 studies performed by  Grant Twanow, our former Director, President and Chief Executive Officer. Mr. Twanow was a Petroleum Reservoir Engineering Specialist based in North America with extensive experience in oil and gas joint ventures and operations. The December 2009 reserve report estimates were based on year end prices for oil and natural gas. As there were no  major discoveries or other favorable or unfavorable events since the report was issued, there was deemed no material change in the estimates of proved developed reserves for the Cochran #1 Well since the December 2009 report.

 

Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history, and changes in economic factors.

 

Capitalized Costs Relating to Oil and Gas Producing Activities

 

The following table illustrates the total amount of capitalized costs relating to natural gas and crude oil producing activities for Cochran #1 producing well and the total amount of related accumulated depreciation, depletion and amortization. The Company also owns a nominal interest in a test well, however, as the operations from this well are not considered material only the Cochran #1 producing well information has been presented.

 

    March 31, 2012     March 31, 2011  
 Cochran #1 Well            
Capitalized costs   $ 242,366     $ 529,705  
Accumulated Depletion     (26,012 )     (70,900 )
Impairment     -       (216,439 )
Total Producing well   $ 226,914     $ 242,366  

 

Costs Incurred in Oil and Gas Producing Activities:

 

    March 31, 2012     March 31, 2011  
 Cochran #1 Well            
Acquisition costs-proved and developed-Cochran #1 Well   $ 313,216     $ 529,705  
Exploration costs     -       - )
Impairments     -     (216,439 )
 Total Costs Incurred   $ 313,216     $ 313,216  

 

Results of Operations from Oil and Gas Producing Activities:

 

All our results of operations are from the Cochran #1 Well production and sales, which are reported in the Statement of Operations for the periods ended March 31, 2012 and 2011.

 

    March 31, 2012     March 31, 2011  
 Cochran #1 Well            
Beginning of the period   $ 198.93     $ 222.77  
Revisions of previous estimates     -          
Extensions and discoveries     -       -  
Production     (14.61 )     (23.84 ))
End of the period   $ 184.32     $ 198.93  

 

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

 

The December 2009 reserve report estimates were based on year end prices for oil and natural gas. As there were no  major discoveries or other favorable or unfavorable events since the report was issued, there was deemed no material change in the estimates of proved developed reserves for the Cochran #1 Well since the December 2009 report. Based on internal analysis the standardized value was estimated to be approximately $122105 as of March 31, 2012.

 

Management does not solely use the following information when making investment and operating decisions. These decisions are based on a number of factors, including estimates of proved reserves, and varying price and cost assumptions considered more representative of a range of anticipated economic conditions.

 

Standardized Measure is as follows:

 

    March 31, 2012     March 31, 2011  
 Cochran #1 Well            
Future cash inflows   $ 416,305     $ 604,549  
Future production costs     (126,742 )     (101,432 )
Future development costs     -       -  
Future net cash flows     289,563       503,117  
10% annual discount     (140,823 )     (262,980 )
Standardized measure   $ 148,741     $ 240,137  

 

Income taxes are expected to be zero.

 

Changes in the Standardized Measure

  

The principal sources of change in the standardized measure of discounted future net cash flows for the years ended March 31, 2012 and 2011 were as follows:

 

    March 31, 2012     March 31, 2011  
 Cochran #1 Well            
Balance - beginning of year   $ 240,137     $ 1,288,000  
Sales, net of operating expenses     (79,791 )     (44,048 ) )
Extensions and discoveries     -       -  
Accretion of discount     -       -  
Net changes in prices and productions costs     11,606       (1,003,815 )
Revisions of prior estimates     -       - )
Balance - end of year   $ 148,741     $ 240,137  

 

Income taxes are expected to be zero.