| Summary of Significant Accounting Policies | 2) Summary of Significant Accounting Policies We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as the "FASB." The FASB determines GAAP, which we follow to ensure we consistently report our financial condition, results of operations, and cash flows. For detailed descriptions of our significant accounting policies, please see the 2014 10-K (Note B, pages 87 to 96). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Significant estimates include oil and gas reserves used for depletion and impairment considerations, accrued revenue and related receivables, valuation of commodity derivative instruments and the cost of future asset retirement obligations. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable under the circumstances. Due to inherent uncertainties, including the future prices of oil and gas, these estimates could change in the near term and such changes could be material. Oil and Gas Properties The Company follows the full cost method in accounting for its oil and gas properties. Under the full cost method, all costs associated with the acquisition, exploration and development of oil and gas properties are capitalized and accumulated in a country-wide cost center. This includes any internal costs that are directly related to development and exploration activities, but does not include any costs related to production, general corporate overhead or similar activities. Proceeds received from property disposals are credited against accumulated cost except when the sale represents a significant disposal of reserves, in which case a gain or loss is recognized. The sum of net capitalized costs and estimated future development and dismantlement costs for each cost center is depleted on the equivalent unit-of-production method, based on proved oil and gas reserves. Excluded from amounts subject to depletion are costs associated with unproved properties. Full Cost Pool Ceiling Test Analysis We perform a quarterly ceiling test for each of our oil and gas cost centers. There is only one such cost center in 2015. The reserves used in the ceiling test and the ceiling test itself incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In arriving at the ceiling test for the quarter ended September 30, 2015, we used prices of $59.21 per barrel for oil and $3.060 per MMbtu for natural gas (and adjusted for property specific gravity, quality, local markets and distance from markets) to compute the future cash flows of our producing properties. The discount factor used was 10%. Primarily due to the lower oil prices, the Company recorded proved property impairments of $21.4 and $43.9 million related to its oil and gas assets during the three and nine months ended September 30, 2015, respectively. Management will continue to review our unproved properties based on market conditions and other changes and, if appropriate, unproved property amounts may be reclassified to the amortized base of properties within the full cost pool. Recent declines in the price of oil have significantly increased the risk of ceiling test write-downs in future periods. Wells in Progress - Mineral Properties We capitalize all costs incidental to the acquisition of mineral properties. Mineral exploration costs are expensed as incurred. When exploration work indicates that a mineral property can be economically developed as a result of establishing proved and probable reserves, costs for the development of the mineral property as well as capital purchases and capital construction are capitalized and amortized using units of production over the estimated recoverable proved and probable reserves. Costs and expenses related to general corporate overhead are expensed as incurred. All capitalized costs are charged to operations if we subsequently determine that the property is not economical due to permanent decreases in market prices of commodities, excessive production costs or depletion of the mineral resource. Mineral properties at September 30, 2015 and December 31, 2014 reflect capitalized costs associated with our Mt. Emmons molybdenum property near Crested Butte, Colorado. Our carrying balance in the Mt. Emmons property at September 30, 2015 and December 31, 2014 is as follows: (In thousands) September 30, December 31, 2015 2014 Costs associated with Mount Emmons beginning of year $ 21,942 $ 20,739 Property purchase (1) -- 1,203 Costs at the end of the period $ 21,942 $ 21,942 (1) Properties and Equipment Components of Property, Plant and Equipment as of September 30, 2015 and December 31, 2014 are as follows: (In thousands) September 30, December 31, 2015 2014 Property, plant and equipment $ 8,166 $ 8,346 Less accumulated depreciation (4,500 ) (4,404 ) Net book value $ 3,666 $ 3,942 Land, buildings, improvements, machinery and equipment are carried at cost. Depreciation of buildings, improvements, machinery and equipment is provided principally by the straight-line method over estimated useful lives ranging from 3 to 45 years. Derivative Instruments The Company uses derivative instruments, typically fixed-rate swaps and costless collars, to manage price risk relating to its oil and gas production. All derivative instruments are recorded in the consolidated balance sheets at fair value. The Company offsets fair value amounts recognized for derivative instruments executed with the same counterparty. Although the Company does not designate any of its derivative instruments as cash flow hedges, such derivative instruments provide an economic hedge of our exposure to commodity price risk associated with forecasted future oil and gas production. These contracts are accounted for using the mark-to-market accounting method and accordingly, the Company recognizes all unrealized and realized gains and losses related to these contracts currently in earnings and classifies them as gain (loss) on risk management activities, on a net basis, in our consolidated statements of operations. The Company may also use puts, calls and basis swaps from time to time. The Company's Board of Directors sets all risk management policies and reviews the status and results of derivative activities, including volumes, types of instruments and counterparties on a quarterly basis. These policies require that derivative instruments be executed only by the Chief Executive Officer or President. The agreements with approved counterparties identify the Chief Executive Officer and President as the only Company representatives authorized to execute trades. Please see Note 4, Commodity Price Risk Management, for further discussion. Revenue Recognition The Company records oil and natural gas revenue under the sales method of accounting. Under the sales method, we recognize revenues based on the amount of oil or natural gas sold to purchasers, which may differ from the amounts to which we are entitled based on our interest in the properties. Natural gas balancing obligations as of September 30, 2015 were not significant. Recent Accounting Pronouncements In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers There are no other new significant accounting standards applicable to the Company that have been issued but not yet adopted by the Company as of September 30, 2015. |
