Property and Equipment

6 Months Ended

Jun. 30, 2013

Note 4 – Property and Equipment

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



		June 30,		December 31,
		2013		2012
Oil and gas properties under the full cost method:
Subject to amortization	$	996,270	$	915,801
Not subject to amortization:
Incurred in 2013		52,508		-
Incurred in 2012		144,865		141,837
Incurred in 2011		99,971		107,510
Incurred prior to 2011		86,659		100,086
		1,380,273		1,265,234
Computers, furniture and fixtures		8,733		8,863
Total property and equipment		1,389,006		1,274,097

Accumulated depreciation, depletion and amortization		(334,172)		(270,656)

Net property and equipment	$	1,054,834	$	1,003,441

The costs not subject to amortization include:

·	values assigned to unproved reserves acquired,

·	exploration costs such as drilling costs for projects awaiting approved development plans or the determination of whether or not proved reserves can be assigned, and

·	other seismic and geological and geophysical costs.

These costs are transferred to the amortization base when it is determined whether or not proved reserves can be assigned to such properties. This analysis is dependent upon well performance, results of infield drilling, approval of development plans, drilling results and development of identified projects and periodic assessment of reserves. We expect acquisition costs excluded from amortization to be transferred to the amortization base over the next five years due to a combination of well performance and results of infield drilling relating to currently producing assets and the drilling and development of identified projects acquired, such as the Rochelle field. We expect exploration costs not subject to amortization to be transferred to the amortization base over the next three years as development plans are completed and production commences on existing discoveries.

For the three months ended June 30, 2013 and 2012, we capitalized $7.6 million and $6.3 million, respectively, in interest related to exploration and development. For the six months ended June 30, 2013 and 2012, we capitalized $13.8 million and $11.9 million, respectively, in interest related to exploration and development, primarily related to our U.K. activities. For the three months ended June 30, 2013 and 2012, we capitalized $1.8 million and $5.3 million, respectively, in certain directly related employee costs. For the six months ended June 30, 2013 and 2012, we capitalized $6.8 million, and $9.8 million, respectively, in certain directly related employee costs.

For the second quarter of 2013, we did not record a pre-tax impairment for any of our oil and gas properties after the application of the full cost ceiling test. The prices used for our U.S. impairment analysis were $91.60 per barrel for oil and $3.46 per Mcf for gas. Our U.K. impairment analysis utilized prices of $107.58 per barrel for oil and $10.24 per Mcf for gas.

For the second quarter of 2012, we recorded a pre-tax impairment of $20.0 million related to our U.S. oil and gas properties through the application of the full cost ceiling test at the end of the quarter. For the six months ended June 30, 2012, we recorded a pre-tax impairment of $35.7 million related to our U.S. oil and gas properties. The impairment was primarily due to the decline in U.S. gas prices. The prices used to determine the impairment for our U.S. properties were $95.54 per barrel for oil and $3.13 per Mcf for gas. We did not have an impairment of U.K. oil and gas properties through the application of the full cost ceiling test at the end of the second quarter of 2012, which utilized prices of $112.40 per barrel for oil and $8.68 per Mcf for gas.

- 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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