Basis of Financial Statement Presentation and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Basis of Financial Statement Presentation and Significant Accounting Policies [Abstract]

Nature of Operations and Organization

Nature of Operations and Organization

Trans Energy is an independent energy company engaged in the acquisition, exploration, development, exploitation and production of oil and natural gas. Its operations are presently focused in the State of West Virginia.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include Trans Energy and its wholly-owned subsidiaries, Prima Oil Company, Inc., Ritchie County Gathering Systems, Inc., Tyler Construction Company, Inc, and Tyler Energy, Inc. All significant inter-company balances and transactions have been eliminated in consolidation. During the quarter, we contributed assets to a new subsidiary called American Shale Development, Inc. See Note 6.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s financial statements are based on a number of significant estimates, including oil and gas reserve quantities which are the basis for the calculation of depreciation, depletion, amortization and impairment of oil and gas properties, and timing and costs associated with its asset retirement obligations. Reserve estimates are by their nature inherently imprecise.

Restatement of Financial Statements

Restatement of Financial Statements

The Unaudited Consolidated Balance Sheets as of June 30, 2012 included in this Form 10-Q/A have been restated to remove the $2 million in cash consideration related to the issuance of certain warrants and related put options from Additional Paid in Capital (“APIC”) and report a warrant derivative liability of $1.2 million which represents its fair value as of the reporting date. The Unaudited Consolidated Statements of Operations for the period ended June 30, 2012 included in this Form 10-Q/A have been restated to include the effect of the $0.8 million of change in the fair value of the derivative warrant liability. Certain adjustments have been made in the Unaudited Consolidated Statement of Stockholders’ Equity and Unaudited Consolidated Statements of Cash Flows to correspond to the income statement and balance sheet adjustments as described above. The following table summarizes the effects of the restatement resulting from the correction of this error.

	June 30, 2012
Unaudited Quarterly Information	As Previously Reported			Adjustment			As Restated
Consolidated Balance Sheets
Warrant Derivative Liability	$	—		$	1,156,660		$	1,156,660
Total Long-Term Liabilities		47,463,037			1,156,660			48,619,697
Total Liabilities		50,768,194			1,156,660			51,924,854
Additional Paid-in Capital		42,316,502			(2,000,000	)		40,316,502
Accumulated deficit		(16,077,798	)		843,340			(15,234,458	)
Shareholders’ Equity		26,249,913			(1,156,660	)		25,093,253

	Three Months Ended								Six Months Ended
	June 30, 2012								June 30, 2012
Unaudited Quarterly Information	As Previously Reported			Adjustment		As Restated			As Previously Reported			Adjustment		As Restated
Consolidated Statements of Operations
Gain on Derivatives	$	—		$	843,340	$	843,340		$	—		$	843,340	$	843,340
Total Other Income (Expenses)		(1,426,154	)		843,340		(582,814	)		(1,857,066	)		843,340		(1,013,726	)
Net earnings (loss)		(2,713,761	)		843,340		(1,870,421	)		(4,210,229	)		843.340		(3,366,889	)
Per share amounts:
Basic earnings (loss) per share	$	(0.21	)		0.07		(0.14	)	$	(0.32	)	$	0.06	$	(0.26	)
Diluted earnings (loss) per share		(0.21	)		0.07		(0.14	)		(0.32	)		0.06		(0.26	)

	Six Months Ended
	June 30, 2012
Unaudited Quarterly Information	As Previously Reported			Adjustment			As Restated
Consolidated Statements of Stockholders’ Equity
Warrants issued – American Shale Development, Inc.	$	2,000,000		$	(2,000,000	)	$	—
Additional Paid in Capital		42.316,502			(2,000,000	)		40,316,502
Net loss		(4,210,229	)		843,340			(3,366,889	)
Accumulated deficit		(16,077,798	)		843,340			(15,234,458	)
Shareholders’ Equity		26,249,913			(1,156,660	)		25,093,253

	Six Months Ended
	June 30, 2012
Unaudited Quarterly Information	As Previously Reported			Adjustment			As Restated
Consolidated Statements of Cash Flows
Net loss	$	(4,210,229	)	$	843,340		$	(3,366,889	)
Adjustment to reconcile net loss to net cash (used) provided by operating activities:
Unrealized gain on derivatives		—			(843,340	)		843,340	)

Cash

Cash

Financial instruments that potentially subject the Company to a concentration of credit risk include cash. At times, amounts may exceed federally insured limits and may exceed reported balances due to outstanding checks. Management does not believe it is exposed to any significant credit risk on cash.

Receivables

Receivables

Accounts receivable and notes receivable are carried at their expected net realizable value. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer’s creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations. No allowance for doubtful accounts is deemed necessary at June 30, 2012 and December 31, 2011 by management and no bad debt expense was incurred during the six months ended June 30, 2012 and 2011.

Financing Cost

Financing Cost

In connection with obtaining new financing in April 2012, we incurred $1,707,071 in fees during the second quarter of 2012. These fees were recorded as financing costs and are being amortized over the life of the loan using the straight-line method. Amortization of financing cost for the six months ended June 30, 2012 and 2011 were $331,244 and $237,500, respectively. Fully amortized financing costs on prior debt have been written off.

Derivatives

Derivatives

Derivatives and Embedded Derivatives, if applicable, are measured at fair value and recognized in the consolidated balance sheets as an asset or a liability. Derivatives are classified in the balance sheet as current or non-current based on whether net-cash settlement is expected within twelve months from the balance sheet date. The changes in the fair value of the derivatives are included in other income (expense) on the consolidated statement of operations. The pricing models used for valuation often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements.

The Company has determined that the warrant and related put option issued for one of its wholly-owned subsidiaries has an embedded derivative. The Company also enters into derivative commodity contracts at times to manage or reduce commodity price risk related to its production. Usually these commodity contracts are not designated as hedges, so changes in the fair value are recognized in other income (expense).

Pursuant to Accounting Standards Codification (“ASC”) 480-10, “Distinguishing Liabilities from Equity”, the put option embodies an obligation that permits Chambers to require Trans Energy to repurchase the warrant by transferring assets (cash). Additionally, the Down-Round Provision is not indexed to Trans Energy’s own stock, as it could result in the exercise price of the warrant being modified based upon a variable that is not an input to the fair value of a ‘fixed-for-fixed’ option, pursuant to ASC 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”.

Asset Retirement Obligations

Asset Retirement Obligations

The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. For the Company, these obligations include dismantlement, plugging and abandonment of oil and gas wells and associated pipelines and equipment. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The liability is accreted to its then present value each period, and capitalized costs are depleted over the estimated useful life of the related asset.

The following is a description of the changes to Trans Energy’s asset retirement obligations for the six months ended June 30:

	2012		2011
Asset retirement obligations at beginning of period	$	256,651	$	219,478
Liabilities incurred during the period		—		5,683
Accretion expense		11,143		10,037
Asset retirement obligations at end of period	$	267,794	$	235,198

At June 30, 2012 and 2011, the Company’s current portion of the asset retirement obligation was $0.

Income Taxes

Income Taxes

At June 30, 2012, the Company had net operating loss carry forwards (NOLS) for future years of approximately $9,860,000. These NOLS will expire at various dates through 2030. The current tax provision is -0- for the six months ended June 30, 2012 due to a net operating loss for the period. No tax benefit has been recorded in the consolidated financial statements for the remaining NOLs or AMT credit since the potential tax benefit is offset by a valuation allowance of the same amount. Utilization of the NOLs could be limited if there is a substantial change in ownership of the Company and is contingent on future earnings.

The Company has provided a valuation allowance equal to 100% of the total net deferred asset in recognition of the uncertainty regarding the ultimate amount of the net deferred tax asset that will be realized.

Commitments and Contingencies

Commitments and Contingencies

The Company operates exclusively in the United States, entirely in West Virginia, in the business of oil and gas acquisition, exploration, development, exploitation and production. 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 local 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 results of operations of the Company.

Revenue and Cost Recognition

Revenue and Cost Recognition

Trans Energy recognizes gas revenues upon delivery of the gas to the customers’ pipeline from Trans Energy’s pipelines when recorded as received by the customer’s meter. Trans Energy recognizes oil revenues when pumped and metered by the customer. Trans Energy recognized $4,909,344 and $5,253,094 in oil and gas revenues for the six months ended June 30, 2012 and 2011, respectively. Trans Energy uses the sales method to account for sales and imbalances of natural gas. Under this method, revenues are recognized based on actual volumes sold to purchasers. The volumes sold may differ from the volumes to which Trans Energy is entitled based on our interest in the properties. These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves. Trans Energy had no material imbalances as of June 30, 2012 and December 31, 2011. Costs associated with production are expensed in the period incurred.

Revenue payable represents cash received but not yet distributed to third parties.

Transportation revenue is recognized when earned and we have a contractual right to receive payment. We recognized $187,688 and $245,043 of transportation revenue for the six months ended June 30, 2012 and 2011, respectively.