Annual report pursuant to Section 13 and 15(d)

ASSET RETIREMENT OBLIGATION

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ASSET RETIREMENT OBLIGATION
12 Months Ended
Dec. 31, 2014
ASSET RETIREMENT OBLIGATION [Abstract]  
ASSET RETIREMENT OBLIGATION
NOTE 9     ASSET RETIREMENT OBLIGATION

The Company has asset retirement obligations (“ARO”) associated with the future plugging and abandonment of proved properties and related facilities.  Initially, the fair value of a liability for an ARO is recorded in the period in which it is incurred and a corresponding increase in the carrying amount of the related long lived asset.  The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.  If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.  The Company has no assets that are legally restricted for purposes of settling asset retirement obligations.  No settlements of asset retirement obligations have occurred during the periods presented.

Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate retirement costs, inflation factors, credit-adjusted discount rates, timing of retirement, and changes in the legal, regulatory, environmental and political environments.  To the extent future revisions to these assumptions impact the present value of the existing ARO, a corresponding adjustment is made to the oil and gas property balance.  For example, as the Company analyzes actual plugging and abandonment information, the Company may revise its estimate of current costs, the assumed annual inflation of the costs and/or the assumed productive lives of its wells.  During 2014, the Company increased its existing ARO by $0.1 million or approximately 2% of the ARO liability at December 31, 2014.  This increase was due to an increase in the estimated costs to plug and abandon the Company’s wells and a decrease in the productive life of certain of its oil and gas properties.  During 2013, the Company increased its existing ARO by $1.1 million or approximately 71% of the ARO liability at December 31, 2013.  This increase was due to an increase in the estimated costs to plug and abandon the Company’s wells and a decrease in the productive life of certain of its oil and gas properties.

The following table summarizes the company’s asset retirement obligation transactions recorded during the year ended December 31, 2014 and 2013.

   
Year Ended December 31,
 
   
2014
   
2013
 
Beginning Asset Retirement Obligation
  $ 3,824,002     $ 1,542,542  
Liabilities Incurred During the Period
    868,460       755,484  
Revision of Estimates
    83,626       1,097,097  
Accretion of Discount on Asset Retirement Obligations
    461,762       428,879  
Liabilities Settled During the Period
    (132,088 )     -  
Ending Asset Retirement Obligation
  $ 5,105,762     $ 3,824,002