Asset Retirement Obligations

12 Months Ended

Dec. 31, 2016

Asset Retirement Obligations

Asset Retirement Obligations

9. Asset Retirement Obligations

The Company follows accounting for asset retirement obligations ("ARO") in accordance with ASC 410, Asset Retirement and Environmental Obligations, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it was incurred if a reasonable estimate of fair value can be made. The Company's ARO primarily represents the estimated present value of the amounts expected to be incurred to plug, abandon and remediate producing and shut-in wells at the end of their productive lives in accordance with applicable state and federal laws. The Company determines the estimated fair value of its ARO by calculating the present value of estimated cash flows related to plugging and abandonment liabilities. The significant inputs used to calculate such liabilities include estimates of costs to be incurred; the Company's credit adjusted discount rates, inflation rates and estimated dates of abandonment. The ARO is accreted to its present value each period and the capitalized asset retirement costs are amortized using the unit of production method.

A reconciliation of the Company's ARO for the years ended December 31, 2016 and 2015 is as follows:

	2016			2015
Balance, beginning of year	$	995,197		$	749,013
Liabilities incurred upon acquisition of properties		-			204,493
Liabilities settled		(4,530	)		(28,684	)
Accretion expense		94,333			70,375
Balance, end of year		1,085,000			995,197
Less: current asset retirement obligations		(425,200	)		(409,621	)
Long-term asset retirement obligations	$	659,800		$	585,576