XML 23 R10.htm IDEA: XBRL DOCUMENT

OIL AND GAS PRODUCING ACTIVITIES

12 Months Ended

Dec. 31, 2016

OIL AND GAS PRODUCING ACTIVITIES

Acquisitions

In May 2014, the Company entered into a Participation Agreement to acquire a 33% interest in approximately 12,100 gross (3,384 net) acres in Dimmit County, Texas. The Company’s share of the acreage consists of 4,020 gross (1,181 net) acres of primary leasehold acreage and 8,080 gross (2,203 net) acres of farm-in acreage, to be earned through a continuous drilling program. The farm-in acreage had an initial two well commitment and a 12.5% carried working interest for the leaseholder (the “Farmor”) in the first 10 wells. After 100% payout of all costs for the first 10 wells that are drilled under the farm-in program, the Farmor will back in for its 12.5% retained working interest in the prospect. The Seller also retained a 25% back-in working interest after 115% of project payout has been received by the Company. The Company paid approximately $3,900 to enter into the transaction, which included leasehold and farm-in acquisition costs as well as a proportionate share of drilling costs for the initial test well in the prospect. As of December 31, 2016, approximately $252 is included in unevaluated properties and the remainder of the costs are included in evaluated properties.

Divestitures

In May 2014, the Company entered into an agreement to sell some of its Williston Basin assets. Under the terms of the agreement, the Company sold its interest in approximately 286 net acres and 16 gross (0.62 net) producing wells in Williams and McKenzie Counties, North Dakota. The transaction closed in June 2014 with an effective date of January 1, 2014. The Company received approximately $12,200 at closing which included $681 in adjustments related to revenue receivable and accounts payable through the date of closing. The balance of the sale proceeds of approximately $11,500 was recorded as a reduction of evaluated properties in the full cost pool.

As discussed in Note 10, in April 2015 the Company settled a quiet title action that was initiated in October 2013, whereby the Company received $1,500 in exchange for releasing its interest in the subject lease. Accordingly, the proceeds from the settlement were accounted for as a reduction of the Company’s evaluated oil and gas properties in 2015.

Ceiling Test and Impairment

The reserves used in the Ceiling Test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the Ceiling Test for the year ended December 31, 2016, the Company used $42.75 per barrel for oil and $2.48 per MMbtu for natural gas (as further adjusted for property specific gravity, quality, local markets and distance from markets) to compute the future cash flows of the Company’s producing properties. The discount factor used was 10%.

For the years ended December 31, 2016 and 2015, impairment of the Company’s oil and gas properties amounted to $9.6 million and $57.7 million, respectively. These impairment charges were primarily due to a decline in the price of oil, additional capitalized well costs and changes in production. Recent declines in the price of oil have significantly increased the risk of Ceiling Test write-downs in future periods.

Capitalized Costs

The following table presents the Company’s capitalized costs associated with oil and gas producing activities as of December 31, 2016 and 2015:

	2016			2015

Oil and Gas Properties
Unevaluated properties:
Unproved leasehold costs	$	4,664		$	5,664
Exploratory wells in progress		-			-
Evaluated properties in full cost pool		87,834			97,912
Less accumulated depreciation, depletion and amortization		(82,640	)		(80,144	)

Net capitalized costs	$	9,858		$	23,432

The Company’s depreciation, depletion and amortization per equivalent BOE was $11.93 for 2016, $26.80 for 2015, and $31.56 for 2014.

Unevaluated Oil and Gas Properties

Unevaluated oil and gas properties consist of leasehold costs and exploratory wells in progress which are excluded from the DD&A calculation and the Ceiling Test until a determination about the existence of proved reserves can be completed. As of December 31, 2016, unevaluated oil and gas properties consisted solely of unproved lease acquisition costs of $4.7 million. As of December 31, 2015, unevaluated oil and gas properties consisted solely of unproved lease acquisition costs of $5.7 million.

	As of December 31,
	2016		2015
Year Incurred

2010	$	-	$	-
2011		2,686		2,686
2012		267		267
2013		525		1,525
2014		1,153		1,153
2015		33		33
2016		0

	$	4,664	$	5,664

During the fourth quarter of 2015, the Company transferred approximately $2,500 of unproved properties that were considered to be impaired into the full cost pool. On a quarterly basis, management reviews market conditions and other changes in circumstances related to the Company’s unevaluated properties and transfers the costs to evaluated properties within the full cost pool as warranted.

Costs Incurred in Oil and Gas Producing Activities

Costs incurred in oil and gas property acquisition, exploration and development activities, all of which have been capitalized, are summarized as follows for the years ended December 31, 2016, 2015 and 2014:

	2016			2015		2014

Acquisition costs:
Proved properties	$	42		$	1,658	$	552
Unproved properties		-			632		4,167
Development costs		(4)			61		8,037
Exploration costs		(1,496	)		369		14,791

Total ⁽¹⁾	$	(1,458)		$	2,720	$	27,547

⁽¹⁾

Includes amounts related to estimated asset retirement obligations reduction of $(24) and additions $61 for the years ended December 31, 2016 and 2015, respectively. The development costs and exploration costs include a reduction in interest of some wells which in prior years were in dispute.

Results of Operations

Presented below are the results of operations from oil and gas producing activities for the years ended December 31, 2016, 2015 and 2014:

	2016		2015			2014

Oil and gas sales	$	5,746	$	10,296		$	32,379
Production costs		(2,728)		(7,352	)		(10,638	)
Depreciation, depletion and amortization		(2,529)		(8,412	)		(14,685	)
Impairment of oil and gas properties		(9,568)		(57,676	)		-

Results of operations from oil and gas producing activities	$	(9,079)	$	(63,144)		$	7,056