Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

1.  Summary of Significant Accounting Policies

The financial statements include the accounts of Pyramid Oil Company (the Company).  Such financial statements included herein have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

A summary of the Company's significant accounting policies is contained in its December 31, 2010 Form 10-K which is incorporated herein by reference.  The financial data presented herein should be read in conjunction with the Company's December 31, 2010 financial statements and notes thereto, contained in the Company's Form 10-K.

In the opinion of the Company, the unaudited financial statements, contained herein, include all adjustments necessary to present fairly the Company's financial position as of September 30, 2011 and the results of its operations and its cash flows for the three and nine month periods ended September 30, 2011 and 2010.  The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year.

Income Taxes - When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.  The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions taken are not offset or aggregated with other positions.  Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

The Company files income tax returns in the U.S. federal jurisdiction, California, Texas and New York states.  With few exceptions, the Company is no longer subject to U.S. federal tax examination for the years before 2007.  State jurisdictions that remain subject to examination range from 2006 to 2010.  The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

The Company policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.  As of the date of adoption of FASB ASC 740, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarter.

Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income.

Earnings (Loss) per Share - Basic earnings (loss) per common share is computed by dividing the net income (loss) applicable to common stock by the weighted average number of shares of common stock outstanding during the period.

Valuation Allowances - The Company has recorded valuation allowances for certain of its oil and gas properties when the undiscounted future net cash flows are less than the net capitalized costs for the property.  On March 21, 2011, the Company participated in the drilling of a joint venture well in Menard County, Texas.  Log analysis of this well indicated that the well would not be commercially viable, and was plugged and abandoned.  The Company owns a 30% interest in the joint venture.  The Company recorded a valuation allowance of $54,384 against the costs incurred during the first six months of 2011 for the drilling of this well.

In addition, the Company determined that the assets related to its joint venture in the Pike 1-H well may have been impaired because the results of drilling operations there had not fulfilled expectations and has not responded favorably to efforts by the Company to stimulate production from this well..  During the third quarter of 2011, the Company determined that well assets of $897,000 were impaired and wrote them down by $673,000 to their estimated fair value.  The estimated fair value was based upon estimated future cash flows to be generated by the wells estimated production discounted at a market rate of interest.

Joint Interest Billing Receivable - The Company entered into a joint venture agreement on February 23, 2011 with Victory Oil Company for the drilling of a well on the Company’s Pike lease.  The Pike 1-H well was drilled during the first quarter of 2011.  The well was completed and placed into production during April 2011.  The Company’s share of the total costs for drilling and completing this well are 68% and Victory Oil’s share of costs are 32%.  As of September 30, 2011, the Company’s share of costs for drilling this well were approximately $897,000 and Victory Oil’s share of the costs were approximately $422,000.  At September 30, 2011, the Company has a joint interest billing receivable of approximately $9,500 from Victory Oil for its share of the costs for operating this well.