The Company has elected to use the full
cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells, including directly related
overhead costs and related asset retirement costs, are capitalized.
Under this method, all costs, including
internal costs directly related to acquisition, exploration and development activities, are capitalized as oil and gas property
costs on a country by country basis. Properties not subject to amortization consist of exploration and development costs which
are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become
proved or their values become impaired. The Company assesses the realizability of unproved properties on at least an annual basis
or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed
based on management's intention with regard to future exploration and development of individually significant properties and the
ability of the Company to obtain funds to finance such exploration and development. If the results of an assessment indicate that
the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.
In applying the full cost method, the
Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment
is compared to the estimated present value of its proved reserves. The estimated present value of proved reserves
is based upon future net revenues (after consideration of current economic and operating conditions at the end of the period) discounted
at a 10 percent interest rate, plus the cost of properties not being amortized, plus the lower of cost or fair market value of
unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of
the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense.
As of September 30, 2012, the Company
had no proved properties and the exploratory well on the Companys properties has previously been fully impaired pending