Note 7 - Business Segments, Risks and Major Customers

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note 7. Business Segments, Risks and Major Customers

The Company operates exclusively in Ohio and Pennsylvania of the United States in the acquisition, exploration, development and production of oil and gas.

The Company operates in an environment with many financial risks, including, but not limited to, the ability to acquire additional economically recoverable oil and gas reserves, the inherent risks of the search for, development of and production of oil and gas, the ability to sell oil and gas at prices which will provide attractive rates of return, the volatility and seasonality of oil and gas production and prices, and the highly competitive and, at times, seasonal nature of the industry and worldwide economic conditions. The Company's ability to expand its reserve base and diversify its operations is also dependent upon the Company's ability to obtain the necessary capital through operating cash flow, borrowings or equity offerings. Various federal, state and governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the proposed business activities of the Company. The Company cannot predict what effect, if any, current and future regulations

may

have on the operations of the Company.

Management of the Company continually evaluates whether the Company can develop oil and gas properties at historical levels given current industry and market conditions. If the Company is unable to do so, it could be determined that it is in the best interests of the Company and its Unitholders to reorganize, liquidate or sell the Company. However, management cannot predict whether any sale transaction will be a viable alternative for the Company in the immediate future.

Natural gas sales accounted for

61%

and

65%

of total crude oil and natural gas sales in

2016

and

2015,

respectively. Approximately

76%

and

69%

of total crude oil and natural gas sales were derived from operated wells in

2016

and

2015,

respectively. The Company had

two

significant purchasers of natural gas production from operated wells for the years ended

December

31,

2016

and

2015.

Natural gas sales to these significant purchasers as a percentage of consolidated crude oil and natural gas sales were as follows:

Natural Gas Purchaser	2016		2015
Dominion Field Services, Inc. ("Dominion")	25	%	27	%
Interstate Gas Supply, Inc. ("IGS")	13		14
	38	%	41	%

As of

December

31,

2016,

natural gas purchased by Dominion covers production from approximately

460

gross operated wells, while natural gas purchased by IGS covers production from approximately

200

gross operated wells. Production purchased by Dominion and IGS from operated wells comprised approximately

63%

of the Company's consolidated natural gas sales in

2016

and

2015,

respectively.

Substantially all of the Company’s crude oil production from operated wells is purchased by Ergon Oil Purchasing, Inc. (“Ergon Oil”).

The Company's production accounts receivable result from sales of natural gas and crude oil. A significant portion of the Company's production accounts receivable is due from the Company's major customers. The Company does not view such concentration as an unusual credit risk. However, the Company does not require collateral from its customers and could incur losses if its customers fail to pay. As a result of management's review of current and historical credit losses and economic activity, a valuation allowance was not deemed necessary at

December

31,

2016

and

2015.

The Company expects that Dominion, IGS and Ergon Oil will continue to be the only major customers for natural gas and crude oil production from its operated wells in

2017.

Historically, the Company has not tracked the purchasers of natural gas and crude oil derived from

third

party operated wells which

may

have the same customers.

The Company has multiple contracts with Dominion and IGS (collectively, the “Gas Purchasers”) which obligate the Gas Purchasers to purchase, and the Company to sell and deliver, certain quantities of natural gas production from the Company’s oil and gas properties throughout the contract periods. The Company

may

elect to lock-in specific volumes of natural gas to be sold in specific months at a mutually agreeable price. The Company has elected to lock-in various monthly quantities of natural gas which total

510,000

MCF from

January

2017

through

October

2017

at various monthly weighted-average pricing provisions averaging

$2.45

per MCF, net of regional basis adjustments. Pricing provisions with the Gas Purchasers apply to certain fixed quantities on a monthly basis with excess monthly quantities being priced based on the current spot market price, plus or minus a current regional basis adjustment. The impact of these contracts on the Company’s future oil and gas sales cannot fully be measured until actual production volumes and prices have been determined.