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SUPPLEMENTAL FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES | 12 Months Ended
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Dec. 31, 2012
SUPPLEMENTAL FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES [Abstract] |
SUPPLEMENTAL FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES | F. SUPPLEMENTAL FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES Capitalized Costs The following table presents information regarding USE's net costs incurred in the purchase of proved and unproved properties, and in exploration and development activities:
|  | (In thousands) |
|  | December 31, |  |  | December 31, |
|  | 2012 |  |  | 2011 |
Unproved oil and gas properties |  | $ | 9,169 |  |  | $ | 20,007 |
Proved oil and gas properties |  |  | 119,919 |  |  |  | 99,496 |
|  | $ | 129,088 |  |  | $ | 119,503 |
USE's DD&A per equivalent BOE was $33.49 in 2012, $31.64 in 2011 and $23.64 in 2010. Undeveloped properties as of December 31, 2012 include costs incurred in the following years:
|  | (In thousands) |
|  | Acquisitions |  |  | Exploration |  |  | Development |  |  | Total |
2010 |  | $ | 994 |  |  | $ | -- |  |  | $ | -- |  |  | $ | 994 |
2011 |  |  | 7,947 |  |  |  | -- |  |  |  | -- |  |  |  | 7,947 |
2012 |  |  | 228 |  |  |  | -- |  |  |  | -- |  |  |  | 228 |
Total |  | $ | 9,169 |  |  | $ | -- |  |  | $ | -- |  |  | $ | 9,169 |
Costs Incurred Costs incurred in oil and natural gas property acquisition, exploration and development activities are summarized below:
|  | (In thousands) |
|  | For the years ending December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Property acquisition costs: |  |  |  |  |  |  |  |  |
Proved |  | $ | 2,987 |  |  | $ | 1,288 |  |  | $ | -- |
Unproved |  |  | 1,416 |  |  |  | 10,679 |  |  |  | 14,237 |
Exploration costs |  |  | 10,943 |  |  |  | 32,787 |  |  |  | 35,899 |
Development costs |  |  | 20,134 |  |  |  | 4,550 |  |  |  | 4,846 |
Total costs incurred |  | $ | 35,480 |  |  | $ | 49,304 |  |  | $ | 54,982 |
Results of Operations Results of operations from oil and natural gas producing activities are presented below:
|  | (In thousands) |
|  | For the years ending December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Oil and gas revenues |  | $ | 32,534 |  |  | $ | 30,958 |  |  | $ | 26,548 |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Operating expenses |  |  | 10,788 |  |  |  | 11,552 |  |  |  | 6,073 |
Depreciation, depletion and amortization |  |  | 14,893 |  |  |  | 13,997 |  |  |  | 10,610 |
Impairment |  |  | 5,189 |  |  |  | -- |  |  |  | -- |
|  |  | 30,870 |  |  |  | 25,549 |  |  |  | 16,683 |
Operating income |  | $ | 1,664 |  |  | $ | 5,409 |  |  | $ | 9,865 |
Oil and Natural Gas Reserves (Unaudited) Proved reserves are estimated quantities of oil and natural gas which geological 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 reserves that can reasonably be expected to be recovered through existing wells with existing equipment and operating methods. Proved oil and natural gas reserve quantities at December 31, 2012 and the related discounted future net cash flows before income taxes are based on the estimates prepared by Cawley, Gillespie & Associates, Inc. The reserve reports for the period ended December 31, 2011 were prepared by Cawley, Gillespie & Associates, Inc., Ryder Scott Company, L.P and Netherland, Sewell & Associates, Inc. The reserve reports for the period ended December 31, 2010 were prepared by Cawley, Gillespie & Associates, Inc. and Ryder Scott Company, L.P. Such estimates have been prepared in accordance with guidelines established by the Securities and Exchange Commission. USE's net ownership interests in estimated quantities of proved oil and natural gas reserves and changes in net proved reserves, all of which are located in the continental United States, are summarized below:
December 31, 2012 |  | Oil (BBLS) |  | Natural Gas or NGL (MCFE)
Beginning of year |  | 2,737,969 |  | 2,744,128
Revisions of previous quantity estimates |  | (145,596) |  | (481,583)
Extensions, discoveries and improved recoveries | 763,125 |  | 369,169
Purchase of reserves in place |  | 75,948 |  | 30,457
Sales of reserves in place |  | (444,272) |  | (437,057)
Production |  | (373,531) |  | (427,026)
End of year |  | 2,613,643 |  | 1,798,088
Proved developed reserves at end of year |  | 1,770,659 |  | 1,420,295
December 31, 2011 |  | Oil (BBLS) |  | Natural Gas or NGL (MCFE)
Beginning of year |  | 1,546,446 |  | 2,450,968
Revisions of previous quantity estimates |  | 4,913 |  | (864,513)
Extensions, discoveries and improved recoveries | 1,516,797 |  | 2,004,535
Purchase of reserves in place |  | 48,615 |  | 49,065
Sales of reserves in place |  | (78,477) |  | (43,716)
Production |  | (300,325) |  | (852,211)
End of year |  | 2,737,969 |  | 2,744,128
Proved developed reserves at end of year |  | 1,884,068 |  | 1,983,581
Standardized Measure (Unaudited) The standardized measure of discounted future net cash flows relating to USE's ownership interests in proved oil and natural gas reserves as of year-end is shown below:
|  | (In thousands) |
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Future cash inflows |  | $ | 237,148 |  |  | $ | 259,533 |  |  | $ | 124,629 |
Future costs: |  |  |  |  |  |  |  |  |  |  |  |
Production |  |  | (96,616 | ) |  |  | (77,813 | ) |  |  | (36,299 | )
Development |  |  | (21,461 | ) |  |  | (42,972 | ) |  |  | (6,774 | )
Future income tax expense |  |  | (8,483 | ) |  |  | (19,790 | ) |  |  | (11,622 | )
Future net cash flows |  |  | 110,588 |  |  |  | 118,958 |  |  |  | 69,934 |
10% discount factor |  |  | (39,571 | ) |  |  | (56,767 | ) |  |  | (25,281 | )
Standardized measure of discounted future net cash flows |  | $ | 71,017 |  |  | $ | 62,191 |  |  | $ | 44,653 |
Future cash flows are computed by applying average prices per barrel of oil and per MMbtu of natural gas at the first day of each month in the 12-month period prior to the end of the reporting period to year-end quantities of proved oil and natural gas reserves. Prices used in computing year end 2012, 2011 and 2010 future cash flows were $94.71/barrel, $96.19/barrel and $79.43/barrel, respectively, for oil and $2.757/MMbtu, $4.12/MMbtu and $4.38/MMbtu for natural gas, respectively, in each case adjusted for regional price differentials and other factors. Future operating expenses and development costs are computed primarily by USE's petroleum engineers by estimating the expenditures to be incurred in developing and producing USE's proved oil and natural gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions. Future income taxes are based on year-end statutory rates, adjusted for the tax basis of oil and gas properties and available applicable tax assets. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair market value of USE's oil and natural gas properties. An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates. Change in Standardized Measure (Unaudited) Changes in standardized measure of future net cash flows relating to proved oil and natural gas reserves are summarized below:
|  | (In thousands) |
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Balance at beginning of period |  | $ | 62,191 |  |  | $ | 44,653 |  |  | $ | 19,984 |
Sales of oil and gas, net of production costs |  |  | (21,747 | ) |  |  | (19,406 | ) |  |  | (20,476 | )
Net change in prices and production costs |  |  | (4,548 | ) |  |  | 1,401 |  |  |  | 3,895 |
Net change in future development costs |  |  | -- |  |  |  | -- |  |  |  | -- |
Extensions and discoveries |  |  | 23,297 |  |  |  | 26,574 |  |  |  | 40,011 |
Purchase of reserves in place |  |  | 2,573 |  |  |  | 3,082 |  |  |  | -- |
Sale of reserves in place |  |  | (13,573 | ) |  |  | (1,947 | ) |  |  | -- |
Revisions of previous quantity estimates |  |  | (5,927 | ) |  |  | (3,158 | ) |  |  | (2,519 | )
Development costs incurred during year |  |  | 22,808 |  |  |  | 14,930 |  |  |  | -- |
Previously estimated development costs incurred |  |  | (9,706 | ) |  |  | (2,719 | ) |  |  | -- |
Net change in income taxes |  |  | 7,261 |  |  |  | (4,270 | ) |  |  | (2,138 | )
Accretion of discount |  |  | 7,254 |  |  |  | 5,207 |  |  |  | 2,576 |
Changes in production rates, timing and other |  |  | 1,134 |  |  |  | (2,156 | ) |  |  | 3,320 |
Balance at end of period |  | $ | 71,017 |  |  | $ | 62,191 |  |  | $ | 44,653 |
Sales of oil and natural gas, net of oil and natural gas operating expenses, are based on historical pretax results. Extensions and discoveries and the changes due to revisions in standardized variables are reported on a pretax discounted basis.

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- Definition The entire disclosure for oil and gas producing industries. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 932 -SubTopic 235 -Section 50 -URI http://asc.fasb.org/section&trid=2145543 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 19 -Paragraph 59A-59Z, 59AA, 59BB, 59CC -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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