NATURAL GAS AND OIL PROPERTIES

12 Months Ended

Dec. 31, 2013

Natural Gas And Oil Properties

4. NATURAL GAS AND OIL PROPERTIES

a)    Proved Properties

Properties	December 31, 2012		Additions		Disposals			Transfer from unproved properties		Depletion for the year			Impairment			December 31, 2013
USA properties	$	1,103,877	$	26,510	$	(168,214	)	$	363,231	$	(457,004	)	$	(521,082	)	$	347,318

a)    Proved Properties – Descriptions

Properties in U.S.A.

i.      Oklahoma, USA

2007-1 Drilling Program

In September 2007, the Company entered into the 2007-1 Drilling Program which will provide 25% Before Casing Point (“BCP”) working interest and 20% After Casing Point (“ACP”) working interest.  The interests are located in Garvin County, Oklahoma.  The working interest was sold on November 5, 2013.

2009-1 Drilling Program

On July 27, 2009, the Company entered into the 2009-1 Drilling Program for five wells which will provide 5.7% Before Casing Point (“BCP”) working interest and 5.00% After Casing Point (“ACP”) working interest.  The interests are located in Garvin County, Oklahoma.  The working interest was sold on November 5, 2013.

2009-3 Drilling Program - 4 Wells

On August 7, 2009, the Company entered into the 2009-3 Drilling Program for four wells which will provide a 6.25% working interest before casing point and 5.0% working interest after casing point.  The interests are located in Garvin County, Oklahoma.  The working interest was sold on November 5, 2013.

Joe Murray Farm #1-18

Joe Murray Farm #1-18 started producing in August 2010.  At December 31, 2013, the total cost of Joe Murray Farm #1-18 was $63,244.  The interests are located in Garvin County, Oklahoma.

ii.    Texas Prospect, Texas, USA

On July 15, 2009, the Company successfully obtained the leases on certain lands in Texas, USA.  These leases will provide the Company with the ability to drill up to 3 exploration wells.  In December 2009, the Company desired to convey a sixty (60%) percent interest in the leases to Hillcrest Resources Ltd and received $111,424 in December 2009.

In August 2010, the first exploration well, Donner #1, started producing.  At December 31, 2013, the total cost of Donner #1 was $327,687.  During August 2011, the second exploration well, Donner#2, commenced production. At December 31, 2013, the total cost of Donner #2 was $507,434.

iii.   King City, California, USA

On May 25, 2009, the Company entered into a Farm-out agreement with Sunset Exploration (“Sunset”) to participate in a drilling and exploration of lands located in California, USA.  The Company paid $100,000 to Sunset towards the permitting and processing of lands and the costs of a gravity survey and a 2D seismic program.  The Company shall pay 66.67% pro rata share of 100% of all costs associated in the initial test well.  If the test well is capable of producing hydrocarbons, then the Company shall pay its working interest pro rata share of all completion costs.  The Company’s working interest is 40% of 100% in the Area of Mutual Interest.

On September 2012, the Company received the amount of $300,000 for a 25% working interest in the SBV 2-32 well, which will revert to a 20% working interest after the Sunset penalty payout of 400% as a result of Sunset’s election not to pay its requisite portion of the completion costs related to the well.  The purchaser also received a 20% working interest in all additional wells drilled in the area of mutual interest and is subsequently responsible for 25% of the completion costs.

During March 2013, the property was abandoned and the cost of $363,231 was moved to the proven cost pool for depletion.

b)     Unproved Properties

Properties	December 31, 2012		Addition		Disposals		Transfer to proved properties			December 31, 2013
USA properties	$	517,299	$	6,670	$	-	$	(363,231	)	$	160,738

c)    Costs not being amortized

The following table sets forth a summary of oil and gas property costs not being amortized at December 31, 2013, by the year in which such costs were incurred. There are no individually significant properties or significant development projects included in costs not being amortized. The majority of the evaluation activities are expected to be completed within five to ten years.

	Total			2013			2012			2011		2010 & Prior
Property acquisition costs and transfer to proved property pool		(363,231	)		(363,231	)		-			-		-
Exploration and development		523,969			6,670			(77,803	)		406,335		188,767
Capitalized interest		-			-			-			-		-
Total		160,738			(356,561	)		(77,803	)		406,335		188,767

Properties in U.S.A.

i. Texas Prospect, Texas, USA

On July 15, 2009, the Company successfully obtained the leases on certain lands in Texas, USA.  These leases will provide the Company with the ability to drill up to 3 exploration wells.  In December 2009, the Company desired to convey a sixty (60%) percent interest in the leases to Hillcrest Resources Ltd and received $111,424 in December 2009.

The first exploration well, Donner #1, started producing in August 2010, Donner #2 started producing in August 2011, these two wells were moved to the proven cost pool for depletion.  The Company has costs of $33,857 relating to the Texas prospect that may be moved to proved properties once additional wells have been drilled.

ii. Premont Northwest Field, USA

On August 20, 2012, the Company acquired its 10% working interest in the Garcia #3 and the continuing development rights in the field with an agreement with Progas Energy Services LLC, a Texas Oil & Gas Company (“Progas”) to jointly develop, the field located in Jim Wells County, Texas, known as the Premont Northwest Field.  The Company acquired these interests through the issuance to Progas of 236,134 common shares valued at $35,420 and its pro-rata share of drilling costs, which amount to $49,460.  The Company has also paid its pro-rata share of $42,000 for two re-completions.