INVESTMENT IN OIL & GAS PROPERTY

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

INVESTMENT IN OIL & GAS PROPERTY

As of September 30, 2011, the Company’s accrued asset retirement obligation totaled $12,780 that was included in the capitalized cost of the oil and gas properties. Depletion expense for the three months ended September 30, 2011 and 2010 amounted to $15,470 and $13,637, respectively.  Depletion expense for the nine months ended September 30, 2011 and 2010 amounted to $62,265 and $46,384, respectively. 

In August 2011, the company raised a total of $65,000 for the drilling and completion of the Chuck #1 well through the issuance of 26 units.  Each of the 26 units was priced at $2,500 per unit totaling $65,000 cash and consisted of 5,000 restricted common shares, a pro rata share of 60% of the net revenue generated from the production of the well, and warrants to purchase 10,000 shares of the Company’s common stock at $0.25 per share with an expiration date of February 2013. Each unit holder was granted the option to surrender their pro rata interest in the revenue from the well back to the company in exchange for 5,000 restricted common shares per unit surrendered. This option is exercisable for a period of 36 months from the dateof acceptance of the Subscription Agreement. Of the $65,000 received, the Company allocated $15,394 towards the value of the investors’ 60% interest in the Company’s share of the well’s net revenue and credited this amount against the $59,015 it has currently paid and capitalized towards the drilling cost of the well. A consulting fee in connection with offering was paid through the issuance of 2.6 units. The capitalized cost of the well was further reduced by the Consultant’s allocated share in the well’s net revenue by $1,539.