Supplementary Information on Oil and Gas Producing Activities

12 Months Ended

Dec. 31, 2011

Supplementary Information on Oil and Gas Producing Activities [Abstract]

SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

NOTE 18 - SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

There are numerous uncertainties inherent in estimating quantities of proved crude oil and natural gas reserves. Crude oil and natural gas reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be precisely measured. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment.

Trans Energy retained Wright & Company, Inc., independent third-party reserve engineers, to perform an independent evaluation of proved reserves as of December 31, 2011 and 2010, respectively. Results of drilling, testing and production subsequent to the date of the estimates may justify revision of such estimates. Accordingly, reserve estimates are often different from the quantities of crude oil and natural gas that are ultimately recovered. All of Trans Energy’s reserves are located in the United States.

The following supplemental unaudited information regarding Trans Energy’s oil and gas activities is presented pursuant to the disclosure requirements of generally accepted accounting principles in the United States. In December 2008, the SEC announced that it had approved revisions designed to modernize the oil and gas company reserves reporting requirements. In addition, in January 2010 the FASB issued an accounting standard update to provide consistency with the SEC rules. See Note 1. Summary of Significant Accounting Policies – Recently issued Accounting Pronouncements. We adopted the rules effective December 31, 2009 and the rule changes, including those related to pricing and technology, which are included in our reserves estimates.

The standardized measure of discounted future net cash flows is computed by applying the required prices of oil and gas to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on fiscal year-end cost estimates assuming continuation of existing economic conditions) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on fiscal year-end statutory tax rates) to be incurred on pre-tax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.

Capitalized Costs and Accumulated Depreciation, Depletion and Amortization

Aggregate capitalized costs relating to Trans Energy’s crude oil and natural gas producing activities, including asset retirement costs and related accumulated depreciation, depletion, and amortization are as follows:

	As of December 31,
	2011			2010
Proved oil and gas producing properties and related lease, wells and equipment	$	49,723,104		$	37,967,076
Unproved Oil and Gas Properties		9,507,789			6,156,188
Accumulated Depreciation, Depletion and Amortization		(14,545,126	)		(7,909,714	)
Net Capitalized Costs	$	44,685,767		$	36,213,550

All of Trans Energy’s operations are in the United States.

Costs Incurred in Oil and Gas Activities

Costs incurred in connection with Trans Energy’s crude oil and natural gas acquisition, exploration and development activities for each of the periods shown below:

	For the Year Ended December 31,
	2011		2010
Acquisition of Properties
Proved	$	—	$	—
Unproved		5,023,409		5,265,912
Exploration Costs		—		—
Development Costs		11,242,136		13,895,853
Total Costs Incurred	$	16,265,545	$	19,161,765

Results of Operations for Oil and Gas Producing Activities

Aggregate results of operations, in connection with Trans Energy’s crude oil and natural gas producing activities, for each of the periods shown below:

	For the Year Ended December 31,
	2011			2010
Sales	$	14,293,883		$	5,681,679
Production Costs (a)		(5,339,544	)		(1,841,788	)
Depreciation, Depletion and Amortization		(5,556,434	)		(3,075,762	)
Income Tax Expense		(214,000	)		(450,000	)
Total Results of Operations for Producing Activities (b)	$	3,183,904		$	324,129

(a) Production costs consist of oil and gas operations expense, production and ad valorem taxes, plus general and administrative expense supporting Trans Energy’s oil and gas operations.

(b) Excludes the activities of pipeline transmission operations, corporate overhead and interest costs, gain on sale of oil and gas assets and related income taxes

Estimated Quantities of Proved Oil and Gas Reserves

Trans Energy’s proved oil and natural gas reserves have been estimated by independent petroleum engineers. Proved reserves are the estimated quantities that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods. Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate. Revisions result primarily from new information obtained from development drilling and production history; acquisitions of oil and natural gas properties; and changes in economic factors.

The following schedule sets forth the proved reserves of Trans Energy during each of the periods presented:

	As of December 31,
	2011									2010
	Oil			Gas			NGL			Oil			Gas
	(BBL)			(MCF)			(BBL)			(BBL)			(MCF)
Proved Reserves:
Beginning of the period		372,769			12,791,642						158,545			6,565,058
Revisions of previous estimates		(198,659	)		4,559,552						—			(1,937,955	)
Extensions and discoveries		5,672			2,713,069			595,505			230,802			9,159,640
Improved recovery											—			—
Production		(15,876	)		(3,369,131	)		(36,116	)		(16,578	)		(995,101	)
Purchases of minerals in place											—			—
Sales of minerals in place											—			—
End of period		163,906			16,695,132			559,388			372,769			12,791,642
Proved Developed Reserves, End of Year		163,906			16,695,133			559,389			372,769			12,791,642

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

The following information is based on Trans Energy’s best estimate of the required data for the Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2011 and 2010 in accordance with GAAP which requires the use of a 10% discount rate. This information is not the fair market value, nor does it represent the expected present value of future cash flows of Trans Energy’s proved oil and gas reserves.

	As of December 31,
	2011			2010
Future Cash Inflows	$	124,209,995		$	90,438,260
Future Production Costs (a)		(35,128,834	)		(28,149,581	)
Future Development Costs		—			(5,550,000	)
Future Income Tax Expense		(17,816,232	)		(11,347,736	)
Future Net Cash Flows	$	71,264,929		$	45,390,943
Discounted for Estimated Timing of Cash Flows	$	38,262,929		$	(23,800,943	)
Standardized Measure of Discounted Future Net Cash Flows	$	33,002,000		$	21,590,000

(a) Production costs include oil and gas operations expense, production ad valorem taxes, transportation costs and general and administrative expense supporting Trans Energy’s oil and gas operations and are based

Effective for the year end 2009, SEC reporting rules require that year-end reserve calculations and future cash inflows be based on the weighted average of the first day of the month price for the previous twelve month period. The prices for 2011 used in the above table were $4.65 per MMBTU, $89.23 per BBL for oil and 48.65 per BBL for natural gas liquids. The prices used for 2010 were $5.29 per MMBTU and $70.60 per BBL.

Summary of Changes in Standardized Measure of Discounted Future Net Cash Flow Relating to Proved Oil and Gas Reserves

Principal changes in the aggregate standardized measure of discounted future net cash flows attributable to Trans Energy’s proved crude oil and natural gas reserves at year end are set forth in the table below:

	For the Year Ended December 31,
	2011			2010
Standardized Measure, Beginning of Year	$	21,590,000		$	12,775,526
Oil gas and NGL sales, net of production costs		(10,979,176	)		(3,839,891	)
Changes in prices and future production		145,458			1,344,478
Extensions, discoveries and improved recovery, net of costs		5,920,873			16,744,699
Purchases and Sales of Minerals in place		—			—
Change in estimated future development costs		(5,550,000	)		(4,500,000	)
Previously estimated development costs incurred		5,550,000			1,050,000
Revisions of previous quantity estimates		14,742,791			4,880,308
Accretion of Discount		2,159,000			1,277,553
Net change in income taxes		(6,468,496	)		(5,043,085	)
Timing and Other		5,891,550			(3,049,588	)
Standardized Measure, End of Year	$	33,002,000		$	21,590,000