ASSET RETIREMENT OBLIGATIONS

12 Months Ended

Dec. 31, 2015

Asset Retirement Obligation Disclosure [Abstract]

ASSET RETIREMENT OBLIGATIONS

The Company records the cost of obligations associated with the retirement of tangible long-lived assets at fair value when the asset is acquired.  The asset retirement obligations (“ARO’s”) are recorded as liabilities and the associated costs are capitalized as part of the related long-lived assets and then depreciated over the remaining useful lives.  Changes in the liabilities resulting from the passage of time are recognized as operating (accretion) expenses and are allocated using the interest method.  For the Company, ARO’s relate to the abandonment of oil and gas producing facilities.

Since the Company uses the full cost method, settlement recognition is impacted.  If a liability is settled for an amount other than the recorded amount, an adjustment is made to the full cost pool, with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves.  In addition, the Company carries ARO assets on the balance sheet as part of its full cost pool, and includes these ARO assets in its amortization base for the purposes of calculating depreciation, depletion and amortization expense.

The net decrease of $3,697,272 to ARO during 2015 is due primarily to revised estimates of P&A cost for Masters Creek and Main Pass properties. P&A cost were revised to reflect current market conditions and efficiencies gained by developing P&A programs for multiple wells.

Asset Retirement Obligations

	December 31,
	2015			2014
Beginning of year balance	$	12,487,770		$	10,697,679
Pyramid liabilities assumed in the merger		-			943,951
Liabilities incurred during year		24,588			416,162
Liabilities settled during year		(35,455	)		-
Accretion expense		604,538			604,511
Revisions in estimated cash flows		(4,290,943	)		(174,533	)
End of year balance	$	8,790,498		$	12,487,770