12.	Standardized Measure of Discounted Future Net Cash Flows (unaudited)

The standardized measure of discounted future net cash flows at December 31, 2012 and 2011, relating to proved oil and natural gas reserves is set forth below. The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting Standards Board and, as such, do not necessarily reflect our expectations of actual revenues to be derived from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation process are equally applicable to the standardized measure computations since these estimates are the basis for the valuation process.

The 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 reserves were prepared in accordance with prescribed accounting and SEC standards. Future cash inflows were computed by applying the unweighted, arithmetic average of the closing price on the first day of each month for the 12-month period prior to December 31, 2012 and 2011, to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year end, based on year-end costs and assuming continuation of existing economic conditions.

Future income tax expenses are calculated by applying appropriate year-end tax rates to future pre-tax net cash flows relating to proved oil and natural gas reserves, less the tax basis of properties involved.

Future income tax expenses give effect to permanent differences, tax credits and loss carryforwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value of our oil and natural gas properties.

	Years Ended December 31,
	(in thousands)
	2012			2011

Future cash inflows	$	117,560		$	118,737
Future production costs		(43,641	)		(42,213	)
Future development cost		(5,022	)		(5,148	)

Future income taxes		(21,200	)		(21,656	)

Future net cash flows		47,697			49,720
10% annual discount		(22,597	)		(23,807	)
,
Standardized measure of discounted future net cash flows	$	25,100		$	25,913

The following are the principal sources of change in the standardized measure of discounted future net cash flows, in thousands:

	Years Ended December 31,
	2012			2011
Balance, beginning of year	$	25,913		$	17,528
Sales of oil and natural gas produced, net of production costs		(6,914	)		(4,662	)
Sale of reserves		-			(51	)
Extensions and discoveries		3,722			4,112
Net changes in prices and production costs		(2,400	)		12,700
Net changes in future development costs		(2,160	)		1,137
Revisions and other changes		2,861			(3,659	)
Accretion of discount		3,841			2,621
Net change in income taxes		237			(3,813	)
Balance, end of year	$	25,100		$	25,913