Oil and Gas Properties

9 Months Ended

Sep. 30, 2011

Note 4. Oil and Gas Properties

The aggregate amount of capitalized costs relating to crude oil and natural gas producing activities and the aggregate amount of related accumulated depreciation, depletion and amortization at September 30, 2011 and December 31, 2010:

	September 30,			December 31,
	2011			2010			Change ($)
Proven properties	$	433,522		$	432,089		$	1,433
Unproven properties		97,838			103,087			(5,249	)
		531,360			535,176			(3,816	)
Impairment and depletion, depreciation and amortization		(511,517	)		(508,583	)		(2,934	)
Oil and gas properties, net	$	19,843		$	26,593		$	(6,750	)

The Company amortizes all capitalized costs of oil and gas properties on the unit-of-production method using proved reserves, if available. The Company has not obtained reserve studies with estimated proved reserves. Management is assessing production data to determine the feasibility of obtaining reserves studies. Therefore at September 30, 2011 and December 31, 2010 there were no capitalized costs subject to amortization.

Unproven properties costs as of September 30, 2011 and December 31, 2010 are associated with a development oil well which was completed in August 2009 and did not produce. Management has impaired the well to the extent of anticipated salvage value of the equipment. During January 2011, the operator of this well presented a two-phase drilling plan to the working interest owners that required a significant investment. Management determined to not participate in the plan due to the required capital investment and the risk of a dry well. According to the Joint Operating Agreement the Company is subject to non-consent penalties that include a relinquishment of its interest in production from the well in favor of the participating working interest owners until the participating working interest owners have recovered 400% of the costs which would have been borne by the Company if it had elected to participate. During the three months ended September 30, 2011, the operator removed equipment from this well for use in another property in which we do not have a working interesting. Our proportionate share of the equipment removed was $7,390 which was greater than our net book value of $5,249. The difference of $2,141 was recognized as a gain on disposal of assets in the Consolidated Statement of Operations.

Properties which are not being amortized are assessed quarterly, on a property-by-property basis, to determine whether they are recorded at the lower of cost or fair market value. As a result of this analysis and lack of reserve studies, the Company recorded an impairment loss of $2,934 and $19,621 for the nine month periods ended September 30, 2011 and 2010, respectively. The impairment is similar to amortization and therefore is not added to the cost of properties being amortized.

Asset Retirement Obligation

The following table summarizes the activity for the Company’s asset retirement obligations:

	September 30,		December 31,
	2011		2010
Asset retirement obligations, beginning of period	$	52,558	$	50,000
Accretion expense		2,038		2,558
Asset retirement obligations, end of period		54,596		52,558
Less: current portion		-		-
Long-term asset retirement obligations, end of period	$	54,596	$	52,558

- Definition

The entire disclosure for long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures.

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