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Property and Equipment

9 Months Ended

Sep. 30, 2011

Note 2 - Property and Equipment

Property and equipment included the following at the dates indicated below:

				September 30,		December 31,
				2011		2010
Oil and gas properties under the full cost method:
	Subject to amortization		$	492,657	$	389,575
	Not subject to amortization:
		Acquired in 2011		107,024		-
		Acquired in 2010		47,858		67,612
		Acquired in 2009		23,382		31,134
		Acquired prior to 2009		56,810		62,684
				727,731		551,005
Computers, furniture and fixtures				4,869		4,222
	Total property and equipment			732,600		555,227

Accumulated depreciation, depletion and amortization				(205,451)		(190,550)

Net property and equipment			$	527,149	$	364,677

The costs not subject to amortization relate to unproved properties and properties being made ready to be placed into service, which are excluded from amortizable capital costs until it is determined whether or not proved reserves can be assigned to such properties. We capitalized $4.0 million and $1.2 million in interest related to exploration activities for the quarters ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, we capitalized $9.9 million and $3.1 million, respectively, in interest related to exploration.

For the third quarter of 2011, we recorded an impairment of $28.8 million related to our U.S. oil and gas properties, including $18 million related to our decision to discontinue activities in Alabama, through the application of the full cost ceiling test at the end of the quarter. We completed our analysis of our test wells in the Alabama area and determined that the likely economic returns in the future would not warrant further investment and therefore reclassified these amounts as evaluated for full cost accounting purposes. The prices used to determine the impairment for the U.S. properties were $94.48 per barrel for oil and $4.20 per Mcf for gas. We did not have an impairment of U.K. oil and gas properties, pre-tax, through the application of the full cost ceiling test at the end of the third quarter 2011. The prices used for the full cost ceiling test for the U.K. properties were $105.30 per barrel for oil and $8.79 per Mcf for gas.

Assets Acquisition

On February 23, 2011, we closed our acquisition of an additional 20% working interest in the Bacchus field for approximately $9.2 million in cash paid at closing and approximately $6.2 million in cash payable at the earlier of three months after first oil is produced or the end of 2011. In addition, we paid capital costs incurred by the seller of $9.4 million. Following the acquisition, we hold an aggregate 30% working interest.

Pending Acquisition

On July 17, 2011, we entered into purchase and sale agreements, subject to the completion of due diligence and certain closing conditions, with SM Energy Company and certain other minority owners to acquire the leasehold and producing interests in the Marcellus shale in north central Pennsylvania, as well as a pipeline and related facilities in McKean and Potter Counties, Pennsylvania, for aggregate consideration of $110 million, including a $2 million deposit paid upon executing the agreement. In October 2011, we extended the period for completing our due diligence process by paying an additional $4 million deposit. We have until December 14, 2011 to close this acquisition.

- 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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