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4.
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Investments in Mineral Properties
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During the nine months ended September 30, 2012, the Company invested a total of $417,785
in four mineral properties. In addition, management reviewed the carrying amount of investments as of the balance sheet date and recognized an impairment expense in the amount of $256,767. As of September 30, 2012 and December 31, 2011, the estimated fair value of mineral properties totaled $1,885,337
and $1,965,557, net of accumulated amortization of $148,988
and $135,987, respectively. Capitalized costs of proved properties are amortized using the straight-line method over the estimated useful life of each well. Unproved properties are excluded from amortization. Amortization expense for the nine months ended September 30, 2012 and 2011 was $86,218
and $79,172, respectively.
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A summary of investments follows:
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S&W Oil & Gas, LLC - Poston Prospect
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On May 4, 2009, the Company entered into an Agreement with S&W Oil & Gas, LLC (“S&W”) to participate in the drilling for oil in the Poston Prospect #1 Lutters in Southwest Trego County, Kansas (the “Poston Prospect”). Pursuant to the agreement, the Company paid $64,500
in exchange for a
25% working interest in the
81.5% net revenue interest in the Poston Prospect. Subsequent to acquiring the working interest, the Company paid $150,791
in capitalized development costs necessary for completion of the initial well and the drilling and completion of a second well in the Poston Prospect. In 2011, the Company recognized an impairment of the investment in the amount of $93,879. During the nine months ended September 30, 2012, the Company sold its interest in the Poston Prospect for cash in the amount of $69,500, resulting in a capital loss of $33,350.
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Oklahoma prospects
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During 2010 and 2011, the Company acquired various working interest percentages ranging from
25% to
50%, from Bay Petroleum for mineral properties located in Oklahoma in exchange for cash totaling $2,072,330. During the year ended December 31, 2011, one well was determined to be a “dry hole” and its full $80,000
carrying value was impaired. During the nine months ended September 30, 2012, the Company acquired additional working interests in the Oklahoma prospects for cash in the amount of $417,785. As of September 30, 2012 and 2011, amortization expense was $86,218
and $62,309, respectively, relating to these wells.
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