NOTE 3 CRUDE OIL AND NATURAL GAS PROPERTIES

The value of the Company's crude oil and natural gas properties consists of all acquisition costs (including cash expenditures and the value of stock consideration), drilling costs and other associated capitalized costs. Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in the accompanying statements of operations from the closing date of the acquisition. Purchase prices are allocated to acquired assets based on their estimated fair value at the time of the acquisition. Acquisitions have been funded with internal cash flow, bank borrowings and the issuance of debt and equity securities. Development capital expenditures and purchases of properties that were in accounts payable and not yet paid in cash at December 31, 2015 and 2014 were approximately $60 million and $221 million, respectively.

2015 Acquisitions

During 2015, the Company acquired approximately 4,355 net acres, for an average cost of approximately $1,314 per net acre, in its key prospect areas in the form of effective leases.

2014 Acquisitions

During 2014, the Company acquired approximately 22,668 net acres, for an average cost of approximately $1,534 per net acre, in its key prospect areas in the form of effective leases. During the same period, the Company separately acquired working interests in 125 gross (10.3 net) wells in undrilled locations in which it does not hold the underlying leasehold interests, for a total cost of approximately $10.6 million.

2013 Acquisitions

During 2013, the Company acquired approximately 20,900 net acres, for an average cost of approximately $1,279 per net acre, in its key prospect areas in the form of effective leases. During the same period, the Company separately acquired working interests in 70 gross (7.0 net) wells in undrilled locations in which it does not hold the underlying leasehold interests, for a total cost of approximately $9.0 million.

Divestitures

From time-to-time the Company may trade leasehold interests with operators to balance working interests in spacing units to facilitate and encourage a more expedited development of the Company's acreage.

Unproved Properties

Unproved properties not being amortized comprise approximately 38,003 net acres and 55,743 net acres of undeveloped leasehold interests at December 31, 2015 and 2014, respectively. The Company believes that the majority of its unproved costs will become subject to depletion within the next five years by proving up reserves relating to the acreage through exploration and development activities, by impairing the acreage that will expire before the Company can explore or develop it further or by determining that further exploration and development activity will not occur. The timing by which all other properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of its reserves.

Excluded costs for unproved properties are accumulated by year. Costs are reflected in the full cost pool as the drilling costs are incurred or as costs are evaluated and deemed impaired. The Company anticipates these excluded costs will be included in the depletion computation over the next five years. The Company is unable to predict the future impact on depletion rates. The following is a summary of capitalized costs excluded from depletion at December 31, 2015 by year incurred.

	Year Ended December 31,
	2015		2014		2013		Prior Years
Property Acquisition	$	1,020,769	$	5,537,321	$	2,385,212	$	1,064,227
Development		-		-		-		-
Total	$	1,020,769	$	5,537,321	$	2,385,212	$	1,064,227

All properties that are not classified as proved properties are considered unproved properties and, thus, the costs associated with such properties are not subject to depletion. Once a property is classified as proved, all associated acreage and drilling costs are subject to depletion.

The Company historically has acquired its properties by purchasing individual or small groups of leases directly from mineral owners or from landmen or lease brokers, which leases historically have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators. The Company generally participates in drilling activities on a heads up basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling.