12.	STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)

The standardized measure of discounted future net cash flows at December 31, 2013 and 2012, 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, 2013 and 2012, 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)
	2013			2012

Future cash inflows	$	101,289		$	117,560
Future production costs		(38,667	)		(43,641	)
Future development cost		(3,681	)		(5,022	)
Future income taxes		(18,115	)		(21,200	)

Future net cash flows		40,826			47,697
10% annual discount		(20,455	)		(22,597	)

Standardized measure of discounted future net cash flows	$	20,371		$	25,100

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

	Years Ended December 31,
	2013			2012
Balance, beginning of year	$	25,100		$	25,913
Sales of oil and natural gas produced, net of production costs		(6,416	)		(6,914	)
Sale of reserves		-			-
Extensions and discoveries		3,040			3,722
Net changes in prices and production costs		525			(2,400	)
Net changes in future development costs		(1,227	)		(2,160	)
Revisions and other changes		(6,556	)		2,861
Accretion of discount		3,736			3,841
Net change in income taxes		2,169			237
Balance, end of year	$	20,371		$	25,100