Investment in American Shale Oil, LLC

3 Months Ended

Mar. 31, 2012

Investment Holdings, Schedule of Investments [Text Block]

Note 4—Investment in American Shale Oil, LLC

The Company accounts for its 50% ownership interest in AMSO, LLC using the equity method since the Company has the ability to exercise significant influence over its operating and financial matters, although it does not control AMSO, LLC. AMSO, LLC is a variable interest entity, however, the Company has determined that it is not the primary beneficiary, as the Company does not have the power to direct the activities of AMSO, LLC that most significantly impact AMSO, LLC’s economic performance.

AMSO has agreed to fund AMSO, LLC’s expenditures as follows: 20% of the initial $50 million of expenditures, 35% of the next $50 million in approved expenditures and 50% of approved expenditures in excess of $100 million. AMSO has also agreed to fund 40% of the costs of the one-time payment for conversion of AMSO, LLC’s research, development and demonstration lease to a commercial lease, in the event AMSO, LLC’s application for conversion is approved. The remaining amounts are to be funded by Total S.A. (“Total”). As of March 31, 2012, the cumulative contributions of AMSO and Total to AMSO, LLC were $52.8 million. Through December 31, 2011, AMSO was allocated 20% of the net loss of AMSO, LLC. AMSO’s portion of the loss of AMSO, LLC increased in December 2011 from 20% to 35%, per the agreement with Total. AMSO’s allocated share of the net loss of AMSO, LLC is included in “Equity in the net loss of AMSO, LLC” in the accompanying consolidated statements of operations.

The following table summarizes the change in the balance of the Company’s investment in AMSO, LLC:

		Three Months Ended March 31,
		2012			2011
		(in thousands)
Balance, beginning of period	$	(685	)	$	1,522
Capital contributions		1,139			1,428
Equity in the net loss of AMSO, LLC		(839	)		(669	)

Balance, end of period	$	(385	)	$	2,281

At March 31, 2012 and December 31, 2011, the liability for equity loss in AMSO, LLC was included in the consolidated balance sheet in “Accrued expenses.”

In accordance with the agreement between the parties, AMSO was committed to a total investment of $10.0 million in AMSO, LLC, all of which, as of March 31, 2012, has been invested. AMSO remains obligated to fund its share of the expenditures it approves beyond the initial $10.0 million investment. AMSO’s share of AMSO, LLC’s budget for the year ending December 31, 2012 is $3.2 million. At March 31, 2012, AMSO had funded $1.0 million of its share of the 2012 budget. There are also a number of other situations where AMSO’s funding obligation could increase further.

Total can increase AMSO’s initial required funding commitment of $10.0 million up to an additional $8.75 million if Total notifies AMSO of its commitment to continue to fund the pilot test up to an agreed upon commitment level. To date, AMSO has not received such notification from Total. Additionally, even if AMSO were to withdraw its interest in AMSO, LLC, it will remain liable for its share of expenditures for safety and environmental reclamation related to events occurring prior to its withdrawal.

Total may terminate its obligations to make capital contributions and withdraw as a member of AMSO, LLC. If Total withdraws as a member of AMSO, LLC, AMSO may also terminate its obligations to make capital contributions and withdraw as a member of AMSO, LLC. Although, subject to certain situations, AMSO and Total are not obligated to make additional contributions beyond their respective shares, they could dilute or forfeit their ownership interests in AMSO, LLC if they fail to contribute their respective shares for additional funding.

At March 31, 2012, the Company’s maximum exposure to additional loss as a result of its required investment in AMSO, LLC was $1.8 million, based on AMSO, LLC’s 2012 budget. The Company’s maximum exposure to additional loss could increase based on the situations described above. The maximum exposure at March 31, 2012 was determined as follows:

	(in thousands)
AMSO’s total committed investment in AMSO, LLC	$	13,211
Less: cumulative capital contributions to AMSO, LLC		(10,993	)
Less: liability for equity loss in AMSO, LLC at March 31, 2012		(385	)

Maximum exposure to additional loss	$	1,833

Summarized unaudited statements of operations of AMSO, LLC are as follows:

	Three Months Ended March 31,
	2012			2011
	(in thousands)
Operating expenses:
General and administrative	$	122		$	168
Research and development		2,274			3,178

Total operating expenses		2,396			3,346

Loss from operations and net loss	$	(2,396	)	$	(3,346	)