ASSET RETIREMENT OBLIGATION

9 Months Ended

Feb. 29, 2012

Asset Retirement Obligation [Abstract]

Asset Retirement Obligation Disclosure [Text Block]

NOTE 10. ASSET RETIREMENT OBLIGATION

The Company provides for future asset retirement obligations on its resource properties and facilities based on estimates established by current legislation and industry practices. The asset retirement obligation is initially measured at fair value and capitalized to oil and gas properties as an asset retirement cost that is depleted over the units of production. The obligation is accreted through accretion expense until it is settled. The fair value of the obligation is estimated by discounting expected future cash outflows to settle the asset retirement obligations using a credit-adjusted risk-free interest rate. The Company recognizes revisions to either the timing or the amount of the original estimate of undiscounted cash outflows as increases or decreases to the asset retirement obligation.

The significant assumptions used to develop the expected liability during the period are as follows:

Gross cost to remediate individual well sites	$	35,000 - $65,000
Gross salvage value expected from individual well sites remediated	$	10,000 - $15,000
Expected inflation rate for oil field service costs		4.50	%
Credit adjusted risk-free interest rate		7.25	%

Actual retirement costs will be recorded against the obligation when incurred. Any difference between the recorded asset retirement obligations and the actual retirement costs incurred is recorded as a gain or loss in the settlement period. The following table summarizes the Company’s asset retirement obligation transactions recorded during the nine months ended February 29, 2012:

Balance at June 1, 2011	$	239,536
Liabilities incurred		632,766
Change in estimate		(79,857	)
Accretion of Discount on Asset Retirement Obligations		28,915
Balance at February 29, 2012	$	821,360