NOTE 20—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, 2014 and 2013, 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 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,
	2014			2013
Proved oil and gas producing properties and related lease, wells and equipment		89,453,477		$	79,358,623
Unproved Oil and Gas Properties		5,728,196			15,092,783
Accumulated Depreciation, Depletion and Amortization		(17,731,699	)		(14,473,069	)

Net Capitalized Costs	$	77,449,974		$	79,978,337

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,
	2014		2013
Acquisition of Properties
Proved	$	—	$	—
Unproved		960,554		6,065,258
Exploration Costs
Development Costs		31,748,593		23,643,344

Total Costs Incurred	$	32,709,147	$	29,708,602

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,
	2014			2013
Sales	$	26,969,359		$	18,174,524
Production Costs (a)		(12,982,632	)		(10,136,028	)
Depreciation, Depletion and Amortization		(9,701,086	)		(5,751,781	)
Income Tax Expense		—			—

Total Results of Operations for Producing Activities (b)	$	4,285,641		$	2,286,715

(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, impairment of fixed 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,
	2014									2013
	Oil (BBL)			Gas (Mcf)			NGL (BBL)			Oil (BBL)			Gas (Mcf)			NGL (BBL)
Proved Reserves:
Beginning of the period		19,073			42,536,167			890,367			133,735			43,939,005			1,649,873
Revisions of previous estimates		397			2,579,426			124,580			(1,808	)		(13,028,885	)		(722,757	)
Extensions and discoveries		8			40,437,710			453,816			6,267			16,916,629			63,537
Production		(2,104	)		(6,273,384	)		(127,530	)		(1,414	)		(3,783,427	)		(100,284	)
Purchases of minerals in place		—			(2,346,798	)		(72,026	)		—			—			—
Sales of minerals in place-leaseholds		—			—			—			(117,707	)		(1,507,155	)		(2	)

End of period		17,374			76,933,121			1,269,207			19,073			42,536,167			890,367

Proved Developed Reserves, End of Year		17,374			62,489,000			1,269,207			19,073			42,536,167			890,367

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, 2014 and 2013 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,
	2014			2013
Future Cash Inflows	$	330,073,018		$	186,892,866
Future Production Costs (a)		(142,451,499	)		(71,482,928	)
Future Development Costs		(7,852,451	)		—
Future Income Tax Expense		(37,524,303	)		(23,081,988	)

Future Net Cash Flows		142,244,765			92,327,950
Discounted for Estimated Timing of Cash Flows		(75,150,765	)		(48,013,950	)

Standardized Measure of Discounted Future Net Cash Flows	$	67,094,000		$	44,314,000

(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 on current year-end economic conditions.

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 benchmark prices for 2014 used in the above table were gas $3.31 per MMBTU, oil $94.99 per BBL and natural gas liquids $41.74 per BBL. The benchmark prices used for 2013 were gas $3.67 per MMBTU, oil $96.78 per BBL and natural gas liquids $35.36 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,
	2014			2013
Standardized Measure, Beginning of Year	$	44,314,000		$	34,295,000
Oil and gas sales, net of production costs		(14,625,871	)		(8,648,780	)
Changes in prices and future production		(1,676,515	)		2,402,924
Extensions, discoveries and improved recovery, net of costs		40,301,999			21,245,578
Sales of Minerals in place-leaseholds		(3,433,255	)		(7,591,348	)
Change in estimated future development costs		(6,553,408	)		18,845,514
Previously estimated development costs incurred		—			—
Revisions of previous quantity estimates		4,682,554			(25,123,031	)
Accretion of Discount		4,431,400			3,429,500
Net change in income taxes		(7,071,933	)		(365,365	)
Timing and Other		6,725,029			5,824,008

Standardized Measure, End of Year		67,094,000		$	44,314,000

In 2013, the Company had net negative revisions of 8.2 MMcf, as 5 proved undeveloped locations were removed from its estimate of reserves at December 31, 2013 due primarily to declines in natural gas pricing and changes to the Company’s drilling plans with regards to horizontal drilling.