Related Party Cost Reductions

12 Months Ended

Dec. 31, 2012

Related Party Cost Reductions

7. Related Party Cost Reductions

In connection with the property acquisition agreement entered into in the third quarter of 2011, the Company executed an operating agreement whereby DNR provides services to operate all of the properties acquired by the Company for a monthly fee of $23,000. The operating agreement expired on March 31, 2012 and renews on a month to month basis. Based on operator costs for the properties prior to the Company’s acquisition, approximately $8,000 per month is included in lease operating expenses and $15,000 per month is included in related party consulting fees in the accompanying Consolidated Statements of Operations. Effective July 1, 2012, the monthly operator fee was reduced to $18,000 per month, of which $8,000 per month is included in lease operating expense and the remaining $10,000 per month is included in related party consulting fees.

As discussed in Note 4, effective July 1, 2012 the Company reduced the amount paid for director fees and other related party consulting arrangements. Presented below is a comparison of the impact of related party cost reductions for the first half of 2012 compared to the second half of 2012:

	Six-Months Ended:
	06/30/12		12/31/12		Reduction
Fees payable in cash:
Operator fees	$	138,000	$	108,000	$	30,000
Consulting fees		30,000		—		30,000
Fees payable in shares of common stock:
Director fees		60,000		3,615		56,385
Consulting fees		90,000		—		90,000
	$	318,000	$	111,615	$	206,385

If these cost reductions had not been implemented for the second half of 2012, the Company’s net loss applicable to common stockholders would have increased from $1,277,805 to $1,484,190, and net loss per share would have increased from $0.16 to $0.19.