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ASSET RETIREMENT OBLIGATION | 12 Months Ended
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Dec. 31, 2013
ASSET RETIREMENT OBLIGATION |
ASSET RETIREMENT OBLIGATION | NOTE O – ASSET RETIREMENT OBLIGATION The Company records an asset retirement obligation (ARO) when the total depth of a drilled well is reached and the Company can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO liability on the consolidated balance sheets and capitalizes a portion of the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. In general, the amount of an ARO and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date and adjusted for the Company’s credit risk. This amount is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds. The additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis. In the third quarter of 2012 the Company re-evaluated its method of plugging abandoned wells and determined by doing so in-house it could lower the cost. Based upon the Company’s current calculations we have established a sufficient reserve, for accounting purposes, to plug the existing wells when necessary.
(in thousands) |  | 2013 |  |  | 2012 |
Asset retirement obligation, January 1 |  | $ | 2,770 |  |  | $ | 2,702 |
Acquisition of oil and gas properties |  |  | - |  |  |  | - |
Revisions in the estimated cash flows |  |  | - |  |  |  | - |
Liability incurred upon acquiring and drilling wells |  |  | - |  |  |  | - |
Liability settled upon plugging and abandoning wells |  |  | - |  |  |  | - |
Accretion of discount expense |  |  | 0 |  |  |  | 68 |
Asset retirement obligation, December 31 |  | $ | 2,770 |  |  | $ | 2,770 |

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- Definition The entire disclosure for an asset retirement obligation and the associated long-lived asset. An asset retirement obligation is a legal obligation associated with the disposal or retirement from service of a tangible long-lived asset that results from the acquisition, construction or development, or the normal operations of a long-lived asset, except for certain obligations of lessees. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 410 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6392692&loc=d3e7535-110849 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 410 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6392692&loc=d3e7569-110849 + Details
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