NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2007
(unaudited)
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY
Organization
Index
Oil
and Gas, Inc. (“Index Inc.” or “the Company”) is the parent company
with four group subsidiaries: Index Oil & Gas Ltd., a United Kingdom holding
company, which provides management services to the Company, and United States
operating subsidiaries; Index Oil & Gas (USA) LLC (“Index USA”), an
operating company; Index Investments North America Inc. (“Index Investments”);
and Index Offshore LLC (“Index Offshore”), a wholly owned subsidiary of Index
Investments and also an operating company. Index Inc., through its subsidiaries,
is engaged in exploration, appraisal, development, production and sale of oil
and natural gas. The Company does not currently operate any of its properties
and sells its oil and gas production to domestic purchasers.
Operations
The
Company’s initial exploration project is located in Kansas, and is a very low
risk, low cost, low working interest, and limited upside project and which
is
not expected to be a significant contributor to future growth. Seven wells
were
drilled in Kansas during the fiscal year 2007, of which five wells were
successful and became oil producers and two wells were unsuccessful. Our working
interest (“WI”) in the Kansas wells is either 5% for wells drilled in Stafford
County or 3.25% for wells drilled in Barton County and the net revenue interest
(“NRI”) is either approximately 4.155% or 2.64%, respectively. The Company has
committed to a current program of 14 wells for low-risk prospects in Stafford
and Barton Counties. The first well spudded in October 2007 and the Company
anticipates that two wells per month will be drilled dependent on oil prices
and
results of drilling operations.
The
Company has made progress with its onshore drilling program in Texas and
Louisiana with its interest in the Walker 1 discovery well (WI 12.5%, NRI 9.36%)
drilled in Louisiana in Fiscal Year 2006 and which began producing in August
2006 and its interest in Vieman 1 (19.5% WI, approximate NRI 14.56%) in Brazoria
County Texas which began production in February 2007. The Hawkins 1
well (WI 12.5%, NRI 10.01%), also in Texas, in Matagorda County, is now
estimated to begin production into the local pipeline grid during the fourth
quarter of calendar year 2007. The Ruse and Dark wells, also in
Matagorda County, were dry holes.
The
Company also drilled two successful wells in south Texas. The Serrano well,
renamed Friedrich Gas Unit 1 (WI 37.5%, NRI 28.125%) , in Victoria County,
found
13 feet of net gas pay and produced with average initial gross daily production
in May and June 2007 of approximately 280 thousand cubic feet (MCF) (47 Barrels
of oil equivalent (BOE)). The Habanero well, renamed Schroeder Gas Unit 1 (WI
37.5%, NRI 28.125%), in Goliad County, found 10 feet of net gas pay and began
producing on August 31, 2007 at an initial daily gross rate of 300 MCF (50
BOE)
and with net production of approximately 2,300 MCF in September
2007.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2007
(unaudited)
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)
The
Ilse
1 well (WI 10% Before Project Payout and WI 8% After Project Payout, NRI 6%),
drilled in the New Taiton Project area in Wharton County, Texas, has been
drilled to total depth of approximately 17,000 feet and logged. Analysis of
the
logs revealed two zones of interest in the Wilcox C and Wilcox A, respectively.
The lowest zone, the Wilcox C, has been perforated and stimulated by a reservoir
“fracture” process. Gas flow from the formation to surface has not been
achieved. The preliminary decision from the operator was that this interval
would not be productive and would not have any proved reserves. The well is
currently suspended, pending a possible test to attempt to achieve gas flows
from the upper zone of interest, the Wilcox A.
All
non-operator members of the joint venture (“non-operators”), including Index,
have agreed to a successor operator and have requested an audit of the
accounting records of the original operator be performed in accordance with
the
Joint Operating Agreement. The original operator, however, refused to
sign a change in operator form to be filed with the Texas Railroad
Commission. The non-operators filed a Temporary Restraining Order and
a Temporary Injunction against the original operator. This was denied
by the Court with parties ordered to mediate. Mediation was held in
October 2007 with no agreement reached. An Injunction Hearing has been set
for
late November 2007.
Since
July 26, 2007, the Company, as a joint interest owner, has received various
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties
by
the operator of the Ilse property. Under Texas case law, the operator is deemed
to be responsible for these unpaid amounts owed to third parties. The Company,
along with other non-operators, is in the data gathering stage and is assessing
the implications and magnitude of these Notices and other legal issues and
the
potential financial impact to the Company. The Company was billed for these
services by the operator on their operating statements to September 2007 and
these costs have been accrued in our condensed consolidated financial statements
as costs related to the Ilse well. It is the Company’s position that no other
contingency accrual is currently required.
Capital
costs associated with the Ilse 1 well have been held outside the full cost
pool,
because a determination as to whether the well has found proved reserves has
not
been completed. At the future point when a determination is made, the costs
associated with Ilse 1 will be included in the full cost pool. To the extent
that Ilse 1 does not find any proved reserves, ignoring all other unrelated
factors, this will lead to higher unit depletion charges in future periods
and
makes it highly likely Index will suffer a ceiling test impairment charge.
Index
is carrying approximately $1.2 million of costs at September 30, 2007 related
to
the Ilse 1 well.
The
George Cason 1 well (18% WI After Project Payout, approximate NRI 13.77%),
drilled on the Fern Lake prospect in Nacogdoches County, Texas, spudded on
June
22, 2007 and reached a total depth of 11,147 feet on July 14, 2007. The well
was
flow tested at an initial rate of approximately 1,200 MCF per day and first
production is estimated to begin in the fourth calendar quarter of 2007. This
is
the first well resulting from the agreements executed with Advanced Drilling
Concepts Petroleum, L.P to reprocess seismic data and develop prospects to
drill
in up to four areas in Texas, Mississippi, and Alabama. The Company has elected
to participate in the Cason 2 well, to be drilled in the fourth calendar quarter
of 2007 on the same lease as the first Cason well.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2007
(unaudited)
NOTE
1 - ORGANIZATION AND OPERATIONS OF THE COMPANY (continued)
In
December 2006, the Company announced that it has signed an exploration agreement
to participate at 15% WI, subsequently increased to 20%, in the Supple Jack
Creek lease area (formerly described as West). The first well, now named HNH
Gas
Unit 1, will target gas in the Edwards Limestone in Lavaca County, Texas. The
proposed total depth of the well is approximately 14,700 feet and
is planned to spud in late November or December 2007. Index has also
agreed to participate in the leasing of additional acreage in the project
area.
In
April
2007, the Company signed agreements to participate in the Shadyside prospect,
located in St. Mary Parish, Louisiana. Index had an initial 15% WI in the
prospect, which will reduce to 13.5% after prospect payout. The Shadyside 1
well
was drilled to a total depth of approximately 16,294 feet and was logged in
September 2007
.
The well
is expected to be tested in late November 2007, and due to non-participation
by
the former operator, Index now has a 30% working interest in the
well.
In
June
2007, the Company announced that it had entered into Participation and Joint
Operating Agreements for the drilling of the Cow Trap project ("Cow Trap")
to be
located in Brazoria County, Texas. The Cow Trap well, named Ducroz 1 (WI 7.5%,
approximate NRI 5.25%), targets gas in stacked Miocene objectives at depths
ranging from 4,900 feet to 6,400 feet. The well has a planned total depth of
approximately 6,800 feet. Ducroz 1 spudded in October 2007 and the Company
has
elected to participate in completion operations proposed by the Operator. Index
has also agreed to participate in the acquisition of additional acreage in
the
lease area.
The
Company announced in April 2007 that it has signed a Participation Agreement
to
explore for gas in the West Wharton prospect. This project could consist of
up
to four exploration wells within the area of mutual interest in Wharton County,
Texas. Index has a 12.5% working interest in the project that will reduce to
9.38% after prospect payout. The first well, Outlar 1 (approximate NRI 7.0%),
spudded on August 12, 2007 and reached total depth in September 2007. Testing
of
the well achieved test flow rates of approximately 1.6 million cubic feet of
gas
per day (mmcfpd) and 77 barrels of condensate per day (bcpd) using a 7/64ths
choke. The Outlar 1 well is currently shut in, awaiting the start of pipeline
connection operations. The Company has elected to participate in the pipeline
operations. Additional drilling locations within the lease area are now being
evaluated.
In
July
2007, the Company announced that it has signed a Purchase and Sale Agreement
to
acquire a 5% WI and approximate 3.5% NRI in the Alligator Bayou exploration
prospect located beneath onshore portions of Brazoria and Matagorda Counties,
Texas. The prospect covers up to several thousand acres. The first well is
planned to spud in early calendar year 2008.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation/Basis of Presentation
The
unaudited condensed consolidated financial statements as of September 30, 2007
and March 31, 2007 and for the six months ended September 30, 2007 and 2006
include the accounts of the Company and its wholly owned subsidiaries, Index
USA, Index Investments, Index Offshore and Index Limited, after eliminating
all
significant intercompany accounts and transactions. Results of operations are
included from the date of incorporation. For the reverse merger between the
Company and Index Ltd. at January 20, 2006, the stockholder’s equity section and
earnings per share in the Condensed Consolidated balance sheet at September
30,
2006 were restated to reflect the exchange of shares using a conversion ratio
of
approximately 2.857 shares of the Company to 1 share of Index
Ltd. Certain reclassifications of prior year balances have been made
to conform such amounts to corresponding 2007 classifications. These
reclassifications have no impact on net income.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Certain accounting policies involve
judgments and uncertainties to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under
different conditions, or if different assumptions had been used. We evaluate
our
estimates and assumptions on a regular basis. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates and assumptions used in preparation of our financial statements.
The
most significant estimates with regard to these financial statements relate
to
the provision for income taxes, dismantlement and abandonment costs, estimates
to certain oil and gas revenues and expenses and estimates of proved oil and
natural gas reserve quantities used to calculate depletion, depreciation and
impairment of proved oil and natural gas properties and equipment.
Interim
Financial Statements
The
accompanying unaudited condensed consolidated financial statements have been
prepared without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been
condensed or omitted, although we believe that the disclosures contained herein
are adequate to make the information presented not misleading. In the opinion
of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the entire year. These unaudited condensed consolidated financial
statements included herein should be read in conjunction with the Financial
Statements and Notes included in the Company’s Annual Report on Form 10-KSB for
the year ended March 31, 2007.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash
and Cash Equivalents, and Concentrations of Credit Risk
Cash
and
cash equivalents represent cash in banks. The Company considers any highly
liquid debt instruments purchased with a maturity date of six months or less
to
be cash equivalents. The Company’s accounts receivable are concentrated among
entities engaged in the energy industry, within the United States. Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents
and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may
be
in excess of the FDIC insurance limit. Allowance for doubtful accounts was
$0 at
September 30, 2007 and March 31, 2007.
Oil
and Gas Properties
The
Company follows the full cost method of accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
of properties within a relatively large geopolitical cost center are capitalized
when incurred and are amortized as mineral reserves in the cost center are
produced, subject to a limitation that the capitalized costs not exceed the
value of those reserves. In some cases, however, certain significant costs,
such
as those associated with offshore U.S. operations, are deferred separately
without amortization until the specific property to which they relate is found
to be either productive or nonproductive, at which time those deferred costs
and
any reserves attributable to the property are included in the computation of
amortization in the cost center. All costs incurred in oil and gas producing
activities are regarded as integral to the acquisition, discovery, and
development of whatever reserves ultimately result from the efforts as a whole,
and are thus associated with the Company’s reserves. The Company capitalizes
internal costs directly identified with performing or managing acquisition,
exploration and development activities. The Company has not capitalized any
internal costs or interest at September 30, 2007 and 2006. Unevaluated costs
are
excluded from the full cost pool and are periodically evaluated for impairment
rather than amortized. Upon evaluation, costs associated with productive
properties are transferred to the full cost pool and amortized. Gains or losses
on the sale of oil and natural gas properties are generally included in the
full
cost pool unless the entire pool is sold.
Capitalized
costs and estimated future development costs are amortized on a
unit-of-production method based on proved reserves associated with the
applicable cost center. The Company has assessed the
impairment
for oil and natural gas properties for the full cost pool at September 30,
2007
and will assess quarterly thereafter using a ceiling test to determine if
impairment is necessary. Specifically, the net unamortized costs for each full
cost pool less related deferred income taxes should not exceed the following:
(a) the present value, discounted at 10%, of future net cash flows from
estimated production of
proved
oil and gas reserves plus (b) all costs being excluded from the amortization
base plus (c) the lower of cost or estimated fair value of unproved properties
included in the amortization base less (d) the income tax effects related to
differences between the book and tax basis of the properties involved. The
present value of future net revenues should be based on current prices, with
consideration of price changes only to the extent provided by contractual
arrangements, as of the latest balance sheet presented. The full cost ceiling
test must take into account the prices of qualifying cash flow hedges in
calculating the current price of the quantities of the future production of
oil
and gas reserves covered by the hedges as of the balance
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
sheet
date. In addition, the use of the hedge-adjusted price should be consistently
applied in all reporting periods and the effects of using cash flow hedges
in
calculating the ceiling test, the portion of future oil and gas production
being
hedged, and the dollar amount that would have been charged to income had the
effects of the cash flow hedges not been considered in calculating the ceiling
limitation should be disclosed. Any excess is charged to expense during the
period that the excess occurs. The Company did not have any hedging activities
during the six months ended September 30, 2007 and 2006. Application of the
ceiling test is required for quarterly reporting purposes, and any write-downs
cannot be reinstated even if the cost ceiling subsequently increases by
year-end. No ceiling test write-down was recorded for the six months ended
September 30, 2007 and 2006. Sales of proved and unproved properties are
accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves of oil and gas, in which case
the
gain or loss is recognized in income.
Abandonment of
properties is accounted for as adjustments of capitalized costs with no loss
recognized.
Other
Property, Plant and Equipment
Other
property, plant and equipment
primarily includes computer software equipment and office furniture and
fittings, which are recorded at cost and depreciated on a straight-line basis
over useful lives of five and three years respectively, Repair and maintenance
costs are charged to expense as incurred while acquisitions are capitalized
as
additions to the related assets in the period incurred. Gains or losses from
the
disposal of property,
plant
and equipment are recorded in the period incurred. The net book value of the
property, plant and equipment that is retired or sold is charged to accumulated
depreciation and amortization, and the difference is recognized as a gain or
loss in the results of operations in the period the retirement or sale
transpires.
Segment
Information
The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information”.
Foreign
Currency Translation
The
Company translates the foreign currency financial statements in accordance
with
the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
Currency Translation.” Assets and liabilities of non-U.S. subsidiaries whose
functional currency is not the U.S. dollar are translated into U.S. dollars
at
fiscal period end exchange rates. Revenue and expense items are translated
at
average exchange rates prevailing during the fiscal year. Translation
adjustments are included in Accumulated other comprehensive gain /(loss) in
the
equity section of the balance sheet, with a cumulative total of $8,791 and
$15,399 at September 30, and March 31, 2007, respectively, and foreign currency
transaction gains/(losses) are included in the statement of
operations
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock
Based Compensation
On
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004)
“Share-Based Payments” (“SFAS-123R”). This statement applies to all awards
granted, modified, repurchased or cancelled after January 1, 2006 and to
the unvested portion of all awards granted prior to that date. The Company
adopted this statement using the modified version of the prospective application
(modified prospective application). Under the modified prospective application,
compensation cost for the portion of awards for which the employee’s requisite
service has not been rendered that are outstanding as of January 1, 2006
must be recognized as the requisite service is rendered on or after that date.
The compensation cost for that portion of awards shall be based on the original
fair market value of those awards on the date of grant as calculated for
recognition under SFAS 123. The compensation cost for these earlier awards
shall
be attributed to periods beginning on or after January 1, 2006 using the
attribution method that was used under SFAS 123. The impact of adoption of
SFAS-123R decreased income from operations and income before income taxes and
net income by $141,072 and $342,534 relating to stock option awards for the
six
months ended September 30, 2007 and 2006 respectively and there was no impact
on
the Condensed Consolidated Statement of Cash Flows. The effect on net income
per
share for basic and diluted is $0.00 and $0.01 for these respective periods.
See
Note 9 of the notes to the Condensed Consolidated Financial Statements for
additional disclosure.
Correction
of Errors
The
Company adopted SFAS 154, “Accounting Changes and Error Corrections—a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”)” in
April 1, 2007, in which it changed the requirements for the accounting for
and
the reporting of a change in accounting principle. The Company requires that
a
new accounting principle be applied to the balances of assets and liabilities
as
of the beginning of the earliest period for which retrospective application
is
practicable and that a corresponding adjustment is made to the opening balance
of retained earnings (or other appropriate components of equity or net assets
in
the balance sheet) for that period rather than being reported in the statement
of operations. When it is impracticable to determine the cumulative effect
of
applying a change in accounting principle to all prior periods, The Company
applies the new accounting principle as if it were adopted prospectively from
the earliest date practicable. The Company will also revise previously issued
financial statements to reflect the correction of an error, should one occur,
and limit the application to the direct effects of the change. Indirect effects
of a change in accounting principle will be recognized in the period of the
accounting change. The Company will continue to account for a change in
accounting estimate in accordance with APB 20. The adoption of this
pronouncement had no impact to the Company’s consolidated financial position or
results of operations.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Certain
Hybrid Instruments
. On February 16, 2006 the FASB issued SFAS 155,
“Accounting for Certain Hybrid Instruments,” which amends SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities,” and SFAS 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.” SFAS 155 allows financial instruments that have embedded
derivatives to be accounted for as a whole (eliminating the need to bifurcate
the derivative from its host) if the holder elects to account for the whole
instrument on a fair value basis. SFAS 155 also clarifies and amends certain
other provisions of SFAS 133 and SFAS 140. This statement is effective for
all
financial instruments acquired or issued in fiscal years beginning after
September 15, 2006. The Company adopted this new standard, effective April
1, 2007, with no impact on its financial position, results of operations or
cash
flows as it currently does not have any hybrid instruments outstanding at
September 30, 2007 and March 31, 2007, respectively.
Accounting
for Servicing of Financial Assets
. In March 2006, the FASB issued SFAS No.
156, “
Accounting for Servicing of Financial Assets—an amendment of FASB
Statement No. 140”(“
SFAS No. 156”), which amends FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
with respect to the accounting for
separately recognized servicing assets and servicing liabilities. This Statement
requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. The Board
concluded that fair value is the most relevant measurement attribute for the
initial recognition of all servicing assets and servicing liabilities, because
it represents the best measure of future cash flows. This Statement permits,
but
does not require, the subsequent measurement of servicing assets and servicing
liabilities at fair value. An entity that uses derivative instruments to
mitigate the risks inherent in servicing assets and servicing liabilities is
required to account for those derivative instruments at fair value. Under this
Statement, an entity can elect subsequent fair value measurement of its
servicing assets and servicing liabilities by class, thus simplifying its
accounting and providing for income statement recognition of the potential
offsetting changes in fair value of the servicing assets, servicing liabilities,
and related derivative instruments. An entity that elects to subsequently
measure servicing assets and servicing liabilities at fair value is expected
to
recognize declines in fair value of the servicing assets and servicing
liabilities more consistently than by reporting other-than-temporary
impairments. The Company adopted this new standard effective April 1,
2007, with no impact the Company’s Condensed Consolidated financial position or
results of operations as the Company does not have any derivative or hedging
instruments.
Income
Taxes.
In June 2006, the FASB issued FASB Interpretation No 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109”, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB 109.
The Interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The Interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition. The Company adopted the new standard
effective April 1, 2007 with no material impact on the Company’s consolidated
financial position or results of operations.
In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
Payment Arrangements ("FSP 00-19-2") which addresses accounting for registration
payment arrangements. FSP 00-
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
19-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument
or
other agreement, should be separately recognized and measured in accordance
with
FASB Statement No. 5, Accounting for Contingencies. FSP 00-19-2 further
clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the issuance
of
EITF 00-19-2, this guidance shall be effective for financial statements issued
for fiscal years beginning after December 15, 2006 and interim periods within
those fiscal years. The Company adopted the new pronouncement effective April
1,
2007 with no impact Company’s consolidated financial position or results of
operations.
New
Accounting Pronouncements Not Yet Adopted
Fair
Value Measurements.
In September 2006, the FASB issued SFAS 157, “Fair
Value Measurements”, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”), and
expands disclosures about fair value measurements. Prior to this Statement,
there were different definitions of fair value and limited guidance for applying
those definitions in GAAP. This Statement provides the definition to increase
consistency and comparability in fair value measurements and for expanded
disclosures about fair value measurements. The Statement emphasizes that fair
value is a market-based measurement, not an entity-specific measurement. The
Statement clarifies that market participant assumptions include assumptions
about risk, i.e. the risk inherent in a particular valuation technique used
to
measure fair value and/or the risk inherent in the inputs to the valuation
technique. The Statement expands disclosures about the use of fair vale to
measure assets and liabilities in interim and annual periods subsequent to
initial recognition. The disclosures focus on the inputs used to measure fair
value and for recurring fair value measurements using significant unobservable
inputs, the effect of the measurements on earnings for the period. The Statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including the financial statements
for an interim period within that fiscal year. The Company does not expect
adoption of this standard will have a material impact on its financial position,
operations or cash flows.
The
Fair Value Option for Financial Assets and Financial Liabilities.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—including an amendment of FASB Statement No.
115”, permitting entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting measurement. The statement
applies to all entities, including not-for profit organizations. Most of the
provisions of this Statement apply only to entities that elect the fair value
option. However, the amendment to FASB Statement No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”, applies to all entities with
available-for-sale and trading securities. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows.
INDEX
OIL AND GAS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST
Oil
and Gas Properties
Major
classes of oil and gas properties under the full cost method of accounting
at
September 30, 2007 and March 31, 2007 consist of the following:
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September
30, 2007
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March
31,
2007
|
|
|
Proved
properties
|
|
$
|
4,664,709
|
|
|
$
|
3,254,211
|
|
|
Unevaluated
and unproved properties
|
|
|
4,888,383
|
|
|
|
1,927,776
|
|
|
Gross
oil and gas properties-onshore
|
|
|
9,553,092
|
|
|
|
5,181,987
|
|
|
Less: accumulated
depletion
|
|
|
(462,392
|
)
|
|
|
(315,937
|
)
|
|
Net
oil and gas properties-onshore
|
|
$
|
9,090,700
|
|
|
$
|
4,866,050
|
|
Included
in the Company's oil and gas properties are asset retirement obligations of
$53,089 and $41,552 as of September 30, 2007 and March 31, 2007,
respectively.
Depletion
expense was $146,456 and $52,445 or $25.13 and $19.19 per barrel of production
for the six months ended September 30, 2007 and 2006, respectively.
At
September 30, 2007 and March 31, 2007, the Company excluded the following
capitalized costs from depletion, depreciation and amortization:
|
|
|
September
30, 2007
|
|
|
March
31,
2007
|
|
|
Not
subject to depletion-onshore:
|
|
|
|
|
|
|
|
Exploration
costs
|
|
$
|
4,281,114
|
|
|
$
|
1,669,478
|
|
|
Cost
of undeveloped acreage
|
|
|
607,269
|
|
|
|
258,298
|
|
|
Total
not subject to depletion
|
|
$
|
4,888,383
|
|
|
$
|
1,927,776
|
|
It
is
anticipated that the cost of undeveloped acreage of $0.6 million and exploration
costs of $4.3 million will be included in depreciation, depletion and
amortization when the related projects are planned and drilled and completed.
Included in exploration cost and undeveloped acreage costs at September 30,
2007
are approximately: $1.2 million related to the Ilse 1 well that has been
drilled, but not tested or completed (see Note 1), $0.3 million related to
undeveloped leasehold for the Supple Jack Creek project area, $0.2 million
related to the ADC exploration agreements, $0.7 million related to the West
Wharton prospect, $0.3 million related to the Alligator Bayou prospect and
$2.1
million related to the Shadyside prospect.
INDEX
OIL AND GAS,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
3 - PROPERTY, PLANT AND EQUIPMENT, PROPERTY ACQUISITIONS AND DISPOSITIONS AND
CAPITALIZED INTEREST (continued)
Acquisitions
and Dispositions
In
the
three months to September 30, 2007, the Company acquired a 5% WI and approximate
3.5% NRI in the Alligator Bayou exploration prospect located beneath onshore
portions of Brazoria and Matagorda Counties, Texas. The prospect covers up
to
several thousand acres. The first well is planned to spud in
early calendar year 2008.
Subsequent
to September 30, 2007, the Company announced that it plans to drill 14 low-risk
wells in Stafford and Barton counties, Kansas. The first well spudded
in October 2007 and drilling is expected at a rate of two well per
month.
Other
Property and Equipment
Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are depreciated using the straight-line method over
their
estimated useful lives of the assets. Maintenance, repairs, and minor renewals
are charged against earnings when incurred. Additions and major renewals are
capitalized. Major assets at September 30, 2007 and March 31, 2007 were as
follows:
|
|
|
September
30, 2007
|
|
|
March
31,
2007
|
|
|
Computer
costs and furniture and fixtures, including foreign translation
adjustment
|
|
$
|
43,009
|
|
|
$
|
23,858
|
|
|
Less:
accumulated depreciation
|
|
|
(24,759
|
)
|
|
|
(11,365
|
)
|
|
Total
other property and equipment
|
|
$
|
18,250
|
|
|
$
|
12,493
|
|
Depreciation
expenses from continuing operations amounted to $1,505 and $326 for the six
months ended September 30, 2007 and 2006, respectively. There was no interest
capitalized in property, plant and equipment at September 30, 2007 and
2006.
NOTE
4 - COMPREHENSIVE LOSS
For
the
six months ended September 30, 2007 and 2006, comprehensive income (loss)
consisted of the amounts listed below.
|
|
|
For
the Six Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Net
loss
|
|
$
|
(911,478
|
)
|
|
$
|
(860,328
|
)
|
|
Foreign
currency translation gain / (loss)
|
|
|
(6,608
|
)
|
|
|
4,035
|
|
|
Comprehensive
Loss
|
|
$
|
(918,086
|
)
|
|
$
|
(856,293
|
)
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
5 - NOTES PAYABLE
Index
Ltd. had incurred debt and raised capital through a series of rounds of
fundraising from inception through September 30, 2006. The entire Index Ltd.
convertible debt stockholder funding has been converted to common stock at
par
and additional paid in capital. After all conversion of stock, notes payable
at
September 30, 2007 and March 31, 2007 were $0. There was no debt
issue cost incurred during the six months ended September 30, 2007 and 2006
and
no debt issue amortization expense in the six months ended September 30, 2007
and 2006. There was no unamortized debt issue cost at September 30,
2007 and March 31, 2007. There were no outstanding bank loans at September
30,
2007 and March 31, 2007.
NOTE
6 - ASSET RETIREMENT OBLIGATION
Activity
related to the Company’s Asset Retirement Obligation (“ARO”) during the six
months ended September 30, 2007 is as follows:
|
|
|
For
the Six Months Ended September 30, 2007
|
|
|
ARO
as of beginning of period
|
|
$
|
41,552
|
|
|
Liabilities
incurred during period
|
|
|
11,537
|
|
|
Liabilities
settled during period
|
|
|
-
|
|
|
Accretion
expense
|
|
|
-
|
|
|
Balance
of ARO as of end of period
|
|
$
|
53,089
|
|
Of
the
total ARO, $53,089 is classified as a long-term liability at September 30,
2007.
For each of the six months ended September 30, 2007 and 2006, the Company
recognized no accretion expense related to its ARO, due to the assumption of
a
full offset of salvage values.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
7 - COMMITMENTS AND CONTINGENCIES
The
Company has various commitments to oil and gas exploration and production
capital expenditures, with ongoing expenditures on the Kansas properties, and
expenditures and commitments relating to wells in Texas and Louisiana arising
out of the normal course of business.
Lease
Commitments
The
Company does not have any capital lease commitments. The Company rents its
main
operating office in Houston on a month-to-month basis for which payments began
in November 2005. The Company also has an original nine month lease, committed
to in April 2007, and recently extended to May 2008 related to corporate housing
for UK based officers while periodically working at the corporate
office.
Consulting
Agreements
The
Company has held consulting agreements with outside contractors, certain of
whom
are also Company stockholders. The Agreements are generally for a fixed term
from inception and renewable from time to time unless either the Company or
Consultant terminates such engagement by written notice.
Stockholder
Matters
There
were no stockholder matters during the quarter ended September 30,
2007.
Litigation
The
Company is subject to various legal proceedings and claims, which arise in
the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on its financial position,
results of operations or liquidity. Consequently, the Company has not recorded
any reserve for legal matters.
All
non-operator members of the joint venture drilling the Ilse well
(“non-operators”), including Index, have agreed to the appointment of a
successor operator and have requested an audit of the accounting records of
the
original operator be performed in accordance with the Joint Operating
Agreement. The original operator, however, refused to sign a change
in operator form to be filed with the Texas Railroad Commission. The
non-operators filed a Temporary Restraining Order and a Temporary Injunction
against the original operator. This was denied by the Court with
parties ordered to mediate. Mediation was held in October 2007 with
no agreement reached. An Injunction Hearing has been set for late
November 2007.
Since
July 26, 2007, the Company, as a joint interest owner, has received various
Texas Property Code Notices of Intent to File Lien Against Property with regard
to materials/equipment sold and/or leased and amounts owed to third parties
by
the operator of the Ilse property. Under Texas case law, the operator
is deemed to be responsible for these unpaid amounts owed to third
parties. The Company, along with other non-operators, is in the
data gathering stage and is assessing the implications and magnitude of these
Notices and other legal issues and the potential financial impact to the
Company. The Company was billed for these services by the operator on
their operating statements to September 2007 and these costs have been accrued
in our condensed consolidated financial statements as costs related to the
Ilse
well. It is the Company’s position that no other contingency accrual
is currently required.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
8 - CAPITAL STOCK
During
the three months ended September 30, 2007, there were no stock transactions
as
follows:
|
Balance
at June 30, 2007
|
|
|
65,803,698
|
|
|
Issuance
of stock
|
|
|
-
|
|
|
Balance
of September 30, 2007
|
|
|
65,803,698
|
|
On
August
13, 2007, Mr. John G. Williams informed the Company that he was resigning from
his position as Executive Vice President Exploration and Production effective
as
of November 1, 2007. As such, 25,000 of unvested shares previously
awarded to Mr. Williams in March 2007 were forfeited. This
resulted in a revision in our previous estimate of forfeiture rate for stock
awards with a corresponding reduction in compensation expense of approximately
$7,000 from grant date through June 30, 2007 and zero compensation expense
in
the quarter ended September 30, 2007. In addition, compensation
expense for the forfeiture of this award in the future will be reduced by
approximately $23,400.
During
the six months ended September 30, 2007, the Company issued a stock award of
25,000 shares of common stock to an employee contingent on 183 days of
continuous service. Upon satisfaction of the terms of the award, the
employee will be issued 25,000 shares of restricted common stock of the
Company.
Total
compensation expense for the three months ended September 30, 2007 and 2006
for
these stock awards was $668 and $12,467, respectively.
The
net
stock compensation expense for all stock award transactions for the quarter
ended September 30, 2007, including the reversal of $7,012 was
$(6,344).
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
The
Board
of Directors of Index Inc. agreed to the adoption of the 2006 Incentive Stock
Option Plan (the “Stock Option Plan”) and approved it on March 14, 2006,
effective as of January 20, 2006, providing for the issuance of up to 5,225,000
shares of Common Stock of Index Inc. to officers, directors, employees and
consultants of Index Inc. and/or its subsidiaries. Pursuant to the Stock Option
Plan, Index Inc. has allowed for the issuance of options to purchase 4,952,526
shares of Common Stock. Total compensation expense recorded for the
issuance of stock options under the Stock Option Plan in the quarter and six
months ended September 30, 2007 was $51,260 and $141,072,
respectively.
The
principal terms and conditions of the share options granted under the Stock
Option Plan are that vesting of the options granted occurs in three stages:
(1)
50% on grant; (2) 25% one year after grant; and (3) 25% two years after grant.
Furthermore, the share options granted under the Share Option Plan are generally
non-transferable other than to a legal or beneficial holder of the options
upon
the option holder’s death. The rights to vested but unexercised options cease to
be effective: (1) 18 months after death of the stock options holder; (2) 6
months after Change of Control of Index Inc.; (3) 12 months after loss
of
office due to health related incapacity or redundancy;
or (4) 12 months after the retirement of the options holder from a position
with
Index Inc. All options have a 5 year expiring term.
INDEX
OIL AND GAS,
INC.
NOTES
TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
During
the six months ended September 30, 2007, the Company also issued stock options
to purchase 125,000 shares of common stock to a new employee, of which 62,500
options vested on date of grant. In March 2007, stock options to
purchase 500,000 shares of common stock were awarded to John Williams, of which
250,000 options vested on date of grant.
On
August
13, 2007, Mr. John G. Williams informed the Company that he was resigning from
his position as Executive Vice President Exploration and Production effective
as
of November 1, 2007. As such, 250,000 unvested options previously
awarded to Mr. Williams in March 2007 were forfeited and the term of exercise
for the remaining 250,000 vested options was changed to end on March 19, 2008.
This resulted in a revision in our previous estimate of forfeiture rate for
stock options with a corresponding reduction in compensation expense of
approximately $28,000 from grant date through June 30, 2007 and zero
compensation expense in the quarter ended September 30, 2007. In
addition, compensation expense for the forfeiture of this award in the future
will be reduced by approximately $79,400.
The
remaining compensation expense associated with total unvested stock and stock
option awards as of September 30, 2007, including transactions described above,
was approximately $109,000, and will be recognized over the remaining weighted
average vesting period. Total overall stock based compensation
expense was $44,916 and $184,670 for the three months ended September 30, 2007
and 2006, respectively.
Effective
January 1, 2006, the Company began accounting for stock-based compensation
under SFAS-123R, whereby the Company records compensation expense based on
the
fair value of awards described below.
Stock
Options
The
following tables summarize the changes in options outstanding and exercised
and
the related exercise prices for the shares of the Company's common stock issued
to certain directors, employees and stockholders at September 30,
2007:
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Outstanding
at March 31, 2007
|
|
|
5,077,526
|
|
|
$
|
0.46
|
|
|
Granted
|
|
|
125,000
|
|
|
$
|
0.83
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Canceled,
forfeited or expired
|
|
|
(250,000
|
)
|
|
$
|
1.42
|
|
|
Outstanding
at September 30, 2007
|
|
|
4,952,526
|
|
|
$
|
0.42
|
|
The
Company has assumed an annual forfeiture rate of 5 % for the awards granted
based on the Company’s history for this type of award to various employee
groups. Compensation expense is recognized ratably over the requisite service
period and immediately for retirement-eligible employees.
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
9 - OPTIONS AND WARRANTS AND STOCK-BASED COMPENSATION
(continued)
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.35
|
|
|
|
4,577,526
|
|
|
|
3.33
|
|
|
$
|
0.35
|
|
|
|
3,433,145
|
|
|
$
|
0.35
|
|
|
$
|
1.42
|
|
|
|
250,000
|
|
|
|
0.47
|
|
|
$
|
1.42
|
|
|
|
250,000
|
|
|
$
|
1.42
|
|
|
$
|
0.83
|
|
|
|
125,000
|
|
|
|
5.00
|
|
|
$
|
0.83
|
|
|
|
62,500
|
|
|
$
|
0.83
|
|
|
$
|
0.42
|
|
|
|
4,952,526
|
|
|
|
3.23
|
|
|
$
|
0.42
|
|
|
|
3,745,645
|
|
|
$
|
0.43
|
|
Warrants
The
following tables summarize the changes in warrants outstanding and exercised
and
the related exercise prices for the shares of the Company's common stock issued
as follows:
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise Price Per Share
|
|
|
Outstanding
and Exercisable March 31, 2007
|
|
|
968,083
|
|
|
$
|
0.13
|
|
|
Exercised
|
|
|
(66,662
|
)
|
|
|
(0.14
|
)
|
|
Exchanged
|
|
|
-
|
|
|
|
-
|
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
and Exercisable at September 30, 2007
|
|
|
901,421
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.07
|
|
|
|
138,655
|
|
|
|
3.00
|
|
|
$
|
0.07
|
|
|
|
138,655
|
|
|
$
|
0.07
|
|
|
$
|
0.14
|
|
|
|
143,037
|
|
|
|
3.00
|
|
|
$
|
0.14
|
|
|
|
143,037
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
|
253,961
|
|
|
|
3.00
|
|
|
$
|
0.14
|
|
|
|
253,961
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
|
339,033
|
|
|
|
3.00
|
|
|
$
|
0.14
|
|
|
|
339,033
|
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
|
26,735
|
|
|
|
3.00
|
|
|
$
|
0.14
|
|
|
|
26,735
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
901,421
|
|
|
|
3.00
|
|
|
$
|
0.13
|
|
|
|
901,421
|
|
|
$
|
0.13
|
|
In
June
2007, a total of 66,662 warrants were exercised at a price of $0.14 for a total
of $9,333 and a total of 66,662 shares of common stock, $0.001 par value, were
issued to a director.
NOTE
10 - EARNINGS PER SHARE
Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock and related stock options were exercised at
the
end of the period. For the periods ended September 30, 2007 and 2006, excluded
from diluted earnings per share are 901,421 and 1,092,676, respectively of
warrants to acquire common stock. As of both September 30, 2007 and 2006, there
are 4,577,526 of options to acquire the Company’s common stock that were
excluded from the computation of diluted earnings per share and which at
September 2007 excluded 375,000 of out of the money options. As of September
30,
2007 25,000 of shares yet to vest under stock awards have also been excluded
from the computation of diluted earnings per share.
The
following is a calculation of basic and diluted weighted average shares and/or
options and warrants outstanding:
|
|
|
For
the Three Months Ended
|
|
|
For
the Six Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Shares—basic
|
|
|
65,803,698
|
|
|
|
57,013,179
|
|
|
|
65,770,913
|
|
|
|
57,013,179
|
|
|
Dilution
effect of stock option and awards at end of period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Shares—diluted
|
|
|
65,803,698
|
|
|
|
57,013,179
|
|
|
|
65,770,913
|
|
|
|
57,013,179
|
|
|
Stock
awards and shares excluded from diluted earnings per share due to
anti-dilutive effect
|
|
|
5,503,947
|
|
|
|
5,670,202
|
|
|
|
5,503,947
|
|
|
|
5,670,202
|
|
|
Earnings
per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
INDEX
OIL AND GAS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(unaudited)
NOTE
11 - OPERATING SEGMENTS
The
Company has one reportable segment, oil and natural gas exploration and
production, as determined in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information.” See below for
information by geographic location.
Geographic
Area Information
During
the six months ended September 30, 2007 and as of September 30, 2007, the
Company owned oil and natural gas interests in three main geographic areas
in
the United States. Geographic revenue and oil and gas property information
below
is based on physical location of the assets at the end of each
period.
|
|
|
September
30, 2007
|
|
|
|
|
Total Oil & Gas
Revenue
|
|
|
Total Oil
and Gas Assets (1)
|
|
|
Kansas
|
|
$
|
77,712
|
|
|
$
|
768,824
|
|
|
Louisiana
|
|
|
111,111
|
|
|
|
2,411,601
|
|
|
Texas
|
|
|
100,125
|
|
|
|
6,407,126
|
|
|
Total
|
|
$
|
288,948
|
|
|
$
|
9,587,551
|
|
|
(1)
|
Total
oil and gas property assets at September 30, 2007 are reported gross.
Under the full cost method of accounting for oil and gas properties,
depreciation, depletion and amortization and impairment is not allocated
to properties. Asset Retirement Obligation assets are also not
included.
|
NOTE
12 - SUBSEQUENT EVENTS
In
October,
t
he Company has
committed to 14 wells for low-risk prospects in Stafford and Barton Counties,
Kansas. The first well spudded in October 2007 and the Company anticipates
that
two wells per month will be drilled dependent on oil prices and results of
drilling operations.
In
October, the Company announced that the first well, Outlar 1 (approximate NRI
7.0%), which spudded on August 12, 2007, reached total depth in September
2007.
Testing of the well
achieved test flow rates of approximately 1.6 million cubic feet of gas per
day
(mmcfpd) and 77 barrels of condensate per day (bcpd) using a 7/64ths choke.
The
Outlar 1 well is currently shut in, awaiting the start of pipeline connection
operations. The Company has elected to participate in the pipeline operations.
Additional drilling locations within the lease area are now being
evaluated.
The
Ducroz 1 well spudded in October 2007 and operations are currently in progress.
The well has reached total depth and the operator has proposed a completion
program which the Company has elected to participate in.
The
Company has elected to participate in the Cason 2 well, to be drilled in the
fourth calendar quarter of 2007 on the same lease as the first Cason
well.