Supplemental Oil and Gas Information

12 Months Ended

Dec. 31, 2015

Supplemental Oil And Gas Information Details - Proved And Unproved Costs

Supplemental Oil and Gas Information

Oil and Natural Gas Exploration and Production Activities

Oil and gas sales reflect the market prices of net production sold or transferred with appropriate adjustments for royalties, net profits interest, and other contractual provisions. Production expenses include lifting costs incurred to operate and maintain productive wells and related equipment including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Production taxes include production and severance taxes. Depletion of oil and natural gas properties relates to capitalized costs incurred in acquisition, exploration, and development activities. Results of operations do not include interest expense and general corporate amounts. The results of operations for the Company's oil and natural gas production activities are provided in the Company's related statements of operations.

Costs Incurred and Capitalized Costs

Net capitalized costs related to the Company’s oil and gas producing activities were as follows:

	December 31,
	2015			2014
Proved oil and natural gas properties	$	131,168,906		$	112,418,105
Unproved oil and natural gas properties		10,394			591,121
Accumulated depreciation, depletion and amortization, and impairment		(99,371,071	)		(18,820,963	)
Total	$	31,808,229		$	94,188,263

The Company incurred the following costs for oil and natural gas acquisition, exploration and development activities during the years ended December 31, 2015 and 2014:

	Years Ended
	December 31,
	2015		2014
Costs incurred for the year:
Proved property acquisition	$	102,928	$	3,164,469
Unproved property acquisition		–		–
Development		18,145,783		29,022,721
Total	$	18,248,711	$	32,187,190

Excluded costs for unproved properties are accumulated by year. Costs are reflected in the full cost pool as the drilling costs are incurred or as costs are evaluated and deemed impaired. The Company anticipates these excluded costs will be included in the depletion computation over the next five years. The Company is unable to predict the future impact on depletion rates. The following is a summary of capitalized costs excluded from depletion:

	Years Ended
	December 31,
	2015		2014
Property acquisition	$	10,394	$	591,121
Development		–		–
Total	$	10,394	$	591,121

Oil and Natural Gas Reserves and Related Financial Data

Information with respect to the Company's crude oil and natural gas producing activities is presented in the following tables. Reserve quantities, as well as certain information regarding future production and discounted cash flows, were determined by Netherland, Sewell & Associates, Inc., independent petroleum consultants based on information provided by the Company.

Oil and Natural Gas Reserve Data

The following tables present the Company's independent petroleum consultants' estimates of its proved oil and natural gas reserves. The Company emphasizes that reserves are approximations and are expected to change as additional information becomes available. Reservoir engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact way and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment.

	Oil			Natural
	(Bbls)			Gas (Mcf)
Proved developed and undeveloped reserves as of December 31, 2013		4,074,492			2,778,593
Revisions of previous estimates		(201,995	)		(131,966	)
Extensions, discoveries and other additions		1,199,673			925,763
Sale of reserves in place		(17,982	)		(12,482	)
Production		(256,257	)		(213,141	)
Proved developed and undeveloped reserves as of December 31, 2014		4,797,931			3,346,767
Revisions of previous estimates		(2,604,830	)		(1,160,775	)
Extensions, discoveries and other additions		175,602			166,953
Sale of reserves in place		–			–
Production		(356,678	)		(413,913	)
Proved developed and undeveloped reserves as of December 31, 2015		2,012,025			1,939,032
Proved developed reserves:
December 31, 2014		1,799,515			1,363,076
December 31, 2015		1,969,223			1,913,914
Proved undeveloped reserves:
December 31, 2014		2,998,416			1,983,691
December 31, 2015		42,802			25,118

Proved reserves are estimated quantities of oil and natural gas, which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are included for reserves for which there is a high degree of confidence in their recoverability and they are scheduled to be drilled within the next five years.

The Company recognized significant additions in net quantities of its proved reserves relating to acquisitions, extensions, discoveries and other additions during the year ended December 31, 2014. The Company’s increase in proved reserves during 2014 was primarily due to acquisitions, extensions, discoveries, and other additions related to drilling activity in and adjacent to our Bakken/Three Forks acreage. During that period, the Company’s net producing well count increased from 4.87 net wells at December 31, 2013 to 7.88 net wells at December 31, 2014. This rapid growth caused the Company’s proved reserves to grow significantly. As a percentage of total acquisitions, extensions, discoveries and other additions to proved reserves for the years ended December 31, 2015 and 2014, -0-% and 48%, respectively, were to the Company’s proved undeveloped reserves.

During 2015, we had a negative revision of 2,798,293 Boe, or 52%, of our December 31, 2014 estimated proved reserves balance. The primary cause for these revisions was related to wells that were non-economical due to lower oil prices and wells that will not be developed due to the Company’s cash flow.

Standardized Measure of Discounted Future Net Cash Inflows and Changes Therein

The following table presents a standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas were prepared in accordance with the provisions of ASC 932-235-50-5. Future cash inflows were computed by applying average prices of oil and natural gas for the first day of the last twelve months as of December 31, 2015 to estimated future production. Future production and development costs were computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Future income tax expenses were calculated by applying appropriate year-end tax rates to future pretax cash flows relating to proved oil and natural gas reserves, less the tax basis of properties involved and tax credits and loss carryforwards relating to oil and natural gas producing activities. Future net cash flows are discounted at the rate of 10% annually to derive the standardized measure of discounted future cash flows. Actual future cash inflows may vary considerably, and the standardized measure does not necessarily represent the fair value of the Company's oil and natural gas reserves. The following is a summary of the Company’s standardized measure of discounted future cash flows for the years as indicated:

	Years Ended December 31,
	2015			2014
Future cash inflows	$	86,500,194		$	423,219,613
Future production costs		(39,241,657	)		(148,863,530	)
Future development costs		(468,738	)		(78,208,378	)
Future income tax expense		–			(42,717,592	)
Future net cash flows		46,789,799			153,430,113
10% annual discount for estimated timing of cash flows		(14,992,255	)		(68,308,455	)
Standardized measure of discounted future net cash flows	$	31,797,544		$	85,121,658

The twelve month average prices were adjusted to reflect applicable transportation and quality differentials on a well-by-well basis to arrive at realized sales prices used to estimate the Company's reserves. The prices for the Company's reserve estimates were as follows:

	Oil		Natural
	(Bbl)		Gas (Mcf)
December 31, 2015	$	41.34	$	1.71
December 31, 2014	$	83.26	$	7.10

Changes in the Standardized Measure of Discounted Future Net Cash Flows at 10% per annum are as follows:

	Years Ended December 31,
	2015			2014
Standard measure, beginning of year	$	85,121,658		$	61,659,271
Sales of oil and natural gas produced, net of production costs		(9,763,075	)		(16,193,558	)
Net changes of prices and production costs		(56,694,415	)		(6,329,518	)
Revisions of quantity estimates		(33,837,468	)		(5,567,648	)
Extensions and discoveries and other adjustments		3,441,930			34,053,998
Changes in estimated future development costs		216,624			1,453,332
Sale of reserves in place		–			(276,920	)
Previously estimated development costs incurred during the period		16,391,373			8,946,915
Accretion of discount		10,033,467			7,437,666
Net changes in income taxes		15,240,529			(2,523,100	)
Changes in timing and other		1,646,921			2,461,220
Standard measure, end of year	$	31,797,544		$	85,121,658