CEILING TEST FOR OIL AND GAS PROPERTIES

9 Months Ended

Sep. 30, 2016

Oil and Gas Property [Abstract]

CEILING TEST FOR OIL AND GAS PROPERTIES

4. CEILING TEST FOR OIL AND GAS PROPERTIES

The reserves used in the Company’s full cost ceiling test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the ceiling test as of September 30, 2016, the Company used a price of $41.68 per barrel for oil and $2.28 per MMbtu for natural gas (as further adjusted for property specific gravity, quality, local markets and distance from markets) to compute the future cash flows of the Company’s producing properties. These prices compare to $50.28 per barrel for oil and $2.59 per MMbtu for natural gas used in the calculation of the Ceiling Test as of December 31, 2015. The discount factor used was 10%.

The Company did not recognize a ceiling test impairment charged for the three months ended September 30, 2016, compared to the three months ended September 30, 2015 when a charge of $21,446 was recognized. For the nine months ended September 30, 2016 and 2015, ceiling test impairment charges for the Company’s oil and gas properties amounted to $9,568 and $43,894, respectively. These impairment charges were primarily related to (i) a decline in the price of oil, (ii) reductions in the estimated quantities that are economically recoverable in the current low oil price environment, and (iii) the transfer of approximately $1,000 of unevaluated properties during the first quarter of 2016 to the full cost pool due to impairment.