Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 13 — COMMITMENTS AND CONTINGENCIES

On September 25, 2010 the Company entered into a twelve month drilling contract. Our remaining maximum liability under the drilling contract, which would apply if we terminated the contract before the end of its term, was approximately $46,000 as of September 30, 2011.

On May 24, 2011, the Company entered into a total depth drilling contract. Our remaining maximum liability under the drilling contract, which would apply if we terminated the contract before the end of its term, was $315,000 as of September 30, 2011.

On June 24, 2011, the Company entered into a forty month drilling contract from July 1, 2011, through October 31, 2014. Our remaining maximum liability under the drilling contract, which would apply if we terminated the contract before the end of its term, was approximately $18.0 million as of September 30, 2011.

On June 29, 2011, the Company entered into a twelve month drilling contract. Our remaining maximum liability under the drilling contract, which would apply if we terminated the contract before the end of its term, was approximately $3.0 million as of September 30, 2011.

Our asset retirement obligation represents the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the end of their productive lives, in accordance with applicable federal, state and local laws. We determine our asset retirement obligation by calculating the present value of estimated cash flows related to the liability. The retirement obligation is recorded as a liability at its estimated present value as of the asset’s inception, with an offsetting increase to proved properties. Periodic accretion of discount of the estimated liability is recorded as an expense in the income statement.

We have outstanding employment agreements with four of our officers for terms ranging up to twelve months. Our maximum commitment under the employment agreements, which would apply if the employees covered by these agreements were all terminated without cause, was approximately $963,000 at September 30, 2011.