Note

–

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of

three

months or less to be cash equivalents.

Investments

Marketable Securities:

The Company classifies its debt and marketable equity securities in

one

two

categories: trading or available-for-sale. Trading securities are bought and held principally for the purposes of selling them in the near term. All other securities are classified as available-for-sale.

Trading and available-for-sale securities are recorded at fair value. Unrealized gains and losses on trading securities, which consist primarily of equity securities, are reported in current earnings.

Unrealized gains and losses on available-for-sale securities, which consist entirely of U.S. Government securities, are reported as a component of other comprehensive income when significant to the financial statements. There are

significant cumulative unrealized gains or losses on available-for-sale securities as of

December

31,

2016

2015.

Equity and Cost Investments:

The Company accounts for its non-marketable investment in partnerships on the equity method if ownership allows the Company to exercise significant influence, or the cost method, if not. See Note

for additional information on equity investments.

Receivables and Revenue Recognition

Oil and gas sales and resulting receivables are recognized when the product is delivered to the purchaser and title has transferred. Sales are to credit-worthy major energy purchasers with payments generally received within

days of transportation from the well site. Historically, the Company has had little, if any, uncollectible receivables; therefore, an allowance for uncollectible accounts has not been provided.

Property and Equipment

Oil and gas properties are accounted for on the successful efforts method. The acquisition, exploration and development costs of producing properties are capitalized. The Company has not historically had any capitalized exploratory drilling costs that are pending determination of reserves for more than

one

year. All costs relating to unsuccessful exploratory wells, geological and geophysical costs, delay rentals, and abandoned properties are expensed. Lease costs related to unproved properties are amortized over the life of the lease and are assessed for impairment periodically. Any impairment of value is charged to expense.

Depreciation, depletion and amortization of producing properties is computed on the units-of-production method on a property-by-property basis. The units-of-production method is based primarily on estimates of proved reserve quantities. Due to uncertainties inherent in this estimation process, it is at least reasonably possible that reserve quantities will be revised in the near term. Changes in estimated reserve quantities are applied to depreciation, depletion and amortization computations prospectively.

Other property and equipment are depreciated on the straight-line, declining-balance, or other accelerated methods as appropriate.

The following estimated useful lives are used for the different types of property:

Office furniture and fixtures (years)	5	to	10
Automotive equipment (years)	5	to	8

Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present. The Company uses its oil and gas reserve reports to test each producing property for impairment quarterly. See Note

for discussion of impairment losses.

Income Taxes

The Company utilizes an asset/liability approach to calculating deferred income taxes. Deferred income taxes are provided to reflect temporary differences in the basis of net assets and liabilities for income tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance if a determination is made that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, based upon the technical merits of the position. The Company will record the largest amount of tax benefit that is greater than

50%

likely of being realized upon settlement with taxing authorities.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The federal income tax returns for

2013,

2014

and

2015

are subject to examination.

Earnings Per Share

Accounting guidance for Earnings Per Share (EPS) establishes the methodology of calculating basic earnings per share and diluted earnings per share. The calculations of basic earnings per share and diluted earnings per share differ in that instruments convertible to common stock (such as stock options, warrants, and convertible preferred stock) are added to weighted average shares outstanding when computing diluted earnings per share. For

2016

and

2015,

the Company had

dilutive shares outstanding; therefore, basic and diluted earnings per share are the same.

Concentrations of Credit Risk and Major Customers

The Company’s receivables relate primarily to sales of oil and natural gas to purchasers with operations in Texas, Oklahoma, Kansas, and South Dakota. The Company had

two

purchasers in

2016

whose purchases were

35%

of total oil and gas sales, compared to

one

2015

with

27%

of total sales.

The Company maintains its cash in bank deposit accounts, which at times

may

exceed federally insured limits. The Company has not experienced any losses in such accounts, and believes that it is not exposed to any significant credit risk with respect to cash and cash equivalents.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates include oil and natural gas reserve quantities that form the basis for the calculation of amortization of oil and natural gas properties. Management emphasizes that reserve estimates are inherently imprecise and that estimates of more recent reserve discoveries are more imprecise than those for properties with long production histories. Actual results could differ from the estimates and assumptions used in the preparation of the Company’s financial statements.

Gas Balancing

Gas imbalances are accounted for under the sales method whereby revenues are recognized based on production sold. A liability is recorded when the Company’s excess takes of natural gas volumes exceed our estimated remaining recoverable reserves (over-produced). No receivables are recorded for those wells where the Company has taken less than our ownership share of gas production (under-produced).

Guarantees

At the inception of a guarantee or subsequent modification, the Company records a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company records a liability for its obligations when it becomes probable that the Company will have to perform under the guarantee. The Company has issued guarantees associated with the Company’s equity investments.

Asset Retirement Obligation

The Company records the fair value of its estimated liability to retire its oil and natural gas producing properties in the period in which it is incurred (typically the date of

first

sales). The estimated liability is calculated by obtaining current estimated plugging costs from the well operators, inflating it over the life of the property and discounting the estimated obligation to its present value. Current year inflation rate used is

4.08%.

When the liability is

first

recorded, a corresponding increase in the carrying amount of the related long-lived asset is also recorded. Subsequently, the asset is amortized to expense over the life of the property and the liability is increased annually for the change in its present value, which is currently

3.25%.

The following table summarizes the asset retirement obligation for

2016

and

2015:

	2016			2015
Beginning balance at January 1	$	1,677,328		$	1,645,597
Liabilities incurred		18,321			49,275
Liabilities settled (wells sold or plugged)		(20,542	)		(17,214	)
Accretion expense		47,018			47,531
Revision to estimate		(11,448	)		(47,861	)
Ending balance at December 31	$	1,710,677		$	1,677,328

New Accounting Pronouncements

May

2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update

2014

09,

Revenue from Contracts with Customers

. ASU

2014

clarifies the principles for recognizing revenue and develops a common revenue standard under U.S.

Generally Accepted Accounting Principles (“GAAP”) under which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU

2014

(as amended) is effective for the Company beginning

January

2018.

The new standard allows application either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the adoption method and the impact ASU

2014

will have on the Company, but it is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

November

2015,

the FASB issued ASU

2015

17,

Balance Sheet Classification of Deferred Taxes

. The update requires that deferred income tax assets and liabilities be classified as noncurrent in the balance sheet. For public entities, the guidance is effective for fiscal years beginning after

December

15,

2016,

including interim periods within those fiscal years. The Company early adopted ASU

2015

as of

December

31,

2016,

on a retrospective basis to all prior balance sheet periods presented. As a result of the adoption, the Company reclassified

$61,710

and

$12,487

as of

December

31,

2016,

and

December

31,

2015,

respectively, from "Other Current Liabilities" in current liabilities to “Deferred Tax Liability, Net” in long term liabilities on the balance sheets. Adoption of ASU

2015

had no impact on the Company's current and previously reported shareholders' equity, results of operations or cash flows. The affected prior period deferred income tax account balances presented throughout this report on Form

-K have been adjusted to reflect the retroactive adoption of ASU

2015

17.

January,

2016,

the FASB issued ASU No.

2016

01,

Recognition and Measurement of Financial Assets and Liabilities

. The update simplifies the accounting and disclosures related to equity investments. The amendments in ASU

2016

are effective for fiscal years beginning after

December

15,

2017

and for interim periods therein. Adoption of this update will not have a material impact on the Company’s financial position, results of operations or cash flows.

February

2016,

the FASB issued ASU No.

2016

02,

Leases

with new lease accounting guidance. Under the new guidance, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The new guidance is not applicable for leases with a term of

months or less. Lessor accounting is largely unchanged. ASU

2016

is effective for the Company beginning after

December

15,

2018,

including interim periods within those fiscal years. The Company currently has no capital or operating leases. Accordingly, we do not expect this new guidance to have any impact on the Company’s financial position, results of operations or cash flows.

August

2016,

the FASB issued ASU

2016

15,

Classification of Certain Cash Receipts and Cash Payments

, which addresses certain issues where diversity in practice was identified and

may

change how an entity classifies certain cash receipts and cash payments on its statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than

one

class of cash flows. This guidance will generally be applied retrospectively and is effective for public business entities for fiscal years beginning after

December

15,

2017,

and interim periods within those years. Early adoption is permitted. All of the amendments in ASU

2016

are required to be adopted at the same time. The Company does not expect this new guidance to have a material impact on the Company’s statement of cash flows.