Summary of Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

Oil and Gas Properties

The Partnership follows the full cost method of accounting for oil and gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves, as determined by independent petroleum engineers. For these purposes, proved natural gas reserves are converted to barrels of oil equivalent (“BOE”) at a rate of 6 Mcf to 1 Bbl.

In applying the full cost method, the Partnership performs a quarterly ceiling test on the capitalized costs of oil and gas properties, whereby the capitalized costs of oil and gas properties are limited to the sum of the estimated future net revenues from proved reserves using prices that are the preceding 12-month un-weighted arithmetic average of the first-day-of-the-month price for crude oil and natural gas held constant and discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, if any. If capitalized costs exceed the ceiling, an impairment loss is recognized for the amount by which the capitalized costs exceed the ceiling, and is shown as a reduction of oil and gas properties and as property impairment expense on the Partnership’s statements of operations. The Partnership does not recognize gain or loss upon sale or disposition of oil and gas properties, unless such a sale would significantly alter the rate of depletion and amortization. During the three month period ended March 31, 2014, the Partnership transferred its working interest and associated asset retirement obligation in a shut-in well to other working interest owners interested in attempting to deepen the well. The Partnership recorded the disposition of its asset retirement obligation totaling $9,849 as a gain on disposition of oil and gas properties due to its significance to the Partnership’s rate of depletion. During the three month period ended March 31, 2013, the Partnership recognized a gain of $90,583 related to the Partnership’s sale of an oil and gas property, $84,777 of which was attributable to the reduction of the Partnership’s asset retirement obligation. During the three month periods ended March 31, 2014 and 2013, the Partnership recognized property impairment expense of proved properties of $297 and $0, respectively.

Estimates of Proved Oil and Gas Reserves

Estimates of Proved Oil and Gas Reserves

Estimates of the Partnership’s proved reserves at March 31, 2014 and December 31, 2013 are prepared and presented in accordance with SEC rules and accounting standards which require SEC reporting entities to prepare their reserve estimates using pricing based upon the un-weighted arithmetic average of the first-day-of-the-month commodity prices over the preceding 12-month period and end of period costs. Future prices and costs may be materially higher or lower than these prices and costs, which would impact the estimate of reserves and future cash flows.

Reserves and their relation to estimated future net cash flows impact the Partnership’s depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. If proved reserve estimates decline, the rate at which depletion expense is recorded increases, reducing net income. A decline in estimated proved reserves and future cash flows also reduces the capitalized cost ceiling and may result in increased impairment expense.

Restoration, Removal, and Environmental Liabilities

Restoration, Removal, and Environmental Liabilities

The Partnership is subject to extensive Federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed.

Liabilities for expenditures of a non-capital nature are recorded when environmental assessments and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted values unless the timing of cash payments for the liability or component is fixed or reliably determinable.

The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled or acquired. Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.

The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life. The liability is discounted using the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

The following table summarizes the Partnership’s asset retirement obligation (inclusive of the current portion) for the three month period ended March 31, 2014 and the year ended December 31, 2013.

	Three months ended			Year ended
	March 31, 2014			December 31, 2013
Beginning asset retirement obligation	$	25,963		$	114,454
Accretion expense	—			905
Retirement related to sale or disposition of proved properties	(9,849		)	(84,777		)
Retirement related to property abandonment and restoration	—			(4,619		)
Ending asset retirement obligation	$	16,114		$	25,963

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The estimated fair values for financial instruments have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable, and accounts payable to affiliates approximates their carrying value due to their short-term nature.

Comprehensive Income

Comprehensive Income

Comprehensive income is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Partnership has no items of comprehensive income other than net income in any period presented. Therefore, net income as presented in the consolidated statements of operations equals comprehensive income.

- Definition

Disclosure of accounting policy for (1) legal obligations associated with the disposal or removal of a long-lived asset from service that result from the acquisition, construction, or development or from the normal operation of a long-lived asset (except obligations of a lessee in connection with leased property that are minimum lease payments or contingent rentals, or obligations that arise solely from a plan to sell or otherwise dispose of a long-lived asset); and (2) certain environmental remediation liabilities that resulted from the improper or other-than-normal operation of a long-lived asset. This accounting policy may address (1) whether the related remediation costs are expensed or capitalized, (2) whether the obligation is measured on a discounted basis, (3) the event, situation, or set of circumstances that generally triggers recognition of loss contingencies arising from the entity's environmental remediation-related obligations, and (4) the timing of recognition of any recoveries.

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