Oil and Gas Properties
The Company follows the full-cost method
of accounting for oil and natural gas properties. Under this method, all costs incurred in the exploration, acquisition and development,
including unproductive wells, are capitalized in separate cost centers for each country. Such capitalized costs include contract
and concessions acquisition, geological, geophysical, and other exploration work, drilling, completing and equipping oil and gas
wells, constructing production facilities and pipelines, and other related costs.
The capitalized costs of oil and gas
properties in each cost center are amortized on a composite unit of production method based on future gross revenues from proved
reserves. Sales or other dispositions of oil and gas properties are normally accounted for as adjustments of capitalized costs.
A gain or loss is not recognized in income unless a significant portion of a cost centers reserves is involved. Capitalized
costs associated with acquisition and evaluation of unproved properties are excluded from amortization until it is determined whether
proved reserves can be assigned to such properties or until the value of the properties is impaired. If the net capitalized costs
of oil and gas properties in a cost center exceed an amount equal to the sum of the present value of estimated future net revenues
from proved oil and gas reserves in the cost center and the lower of cost or fair value of properties not being amortized, both
adjusted for income tax effects, such excess is charged to expense.
Capitalized costs associated with acquisition
and evaluation of unproved properties are excluded from amortization until it is determined whether proved reserves can be assigned
to such properties or until the value of the properties is impaired.
As all client leases with production
lapsed were written off the asset retirement obligation of $56,328 was re-evaluated. $23,280 was reclassified to accounts payable
to correspond with the plugging and abandonment cost associated with the expired leases and the balance was reversed.