SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2013 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ' |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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NATURE OF OPERATIONS AND ORGANIZATION |
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Three Forks, Inc. (the "Company") was incorporated on March 28, 2012 in the |
State of Colorado. The Company's business plan focuses on the development as an |
independent energy company engaged in the acquisition, exploration, development |
and production of North American conventional oil and gas properties through the |
acquisition of leases and/or royalty interests and developing the properties for |
maximum cash flow. |
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On September 7, 2012, the Company acquired working interests between 10.12% and |
10.50% in five (5) producing oil and gas wells along with mineral interests in |
proved undeveloped leaseholds totaling approximately 320 acres located in Weld |
county Colorado valued at $1,477,990 as well as a 76.25% working interest in |
undeveloped leaseholds totaling approximately 120 acres located in Morgan county |
Colorado valued at $14,000 in exchange for the issuance of 700,000 shares of the |
Company's common stock valued at $1,400,000 or $2.00 per share and the |
assumption of certain debt in the amount of $91,990. In addition, the Company |
was required to fund an escrow account in the amount of $55,000 for legal |
services that may occur over a three year period from the date of the |
acquisition and this escrow account at June 30, 2013 and December 31, 2012 has a |
balance of $55,122 and $55,081 respectively. Effective January 1, 2013, the |
Company sold its entire interest in these oil and gas properties located in Weld |
county Colorado for $1,600,000 in cash. See Note 4 - Property Held for Sale. |
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On December 31, 2012, the Company entered into a Farmout Agreement ("Farmout") |
where the Company had a 100% working interest in 320gross/290net acres of |
mineral interests located in Archer county Texas subject to the Farmout. In |
consideration of Three Forks No 1 LLC, a Colorado limited liability company |
("LLC"), undertaking and paying it's pro rata portion of the costs associated |
with the drilling and completion of 9 wells in Archer county Texas on the |
Farmout property, the Company assigned 87% of the working interest in the |
Farmout to the LLC. Likewise, on January 1, 2013, the Company assigned 3% of the |
working interest in the Farmout to three members of the Board of Directors of |
the Company. |
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Effective June 30, 2013, the Company acquired a 37.5% working interest in |
certain oil and gas properties located in Louisiana and Texas totaling |
approximately 1955.41 gross acres in exchange for $1,900,000 in cash as part of |
a purchase sale and participation agreement dated February 27, 2013 to acquire a |
total of 75% working interest in the properties as well as participate in a |
development program that includes the drilling and completion of additional |
wells. This acquisition is subject to a reversionary event whereby the Company |
must acquire on September 1, 2013, the remaining 37.5% of the working interest |
in the properties for $1,900,000 in cash or the Company must revert back to the |
Seller the 37.5% working interest acquired effective June 30, 2013. |
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The Company's acquisition of the 37.5% of working interest in the oil and gas |
properties was accounted for as an acquisition for accounting purposes. |
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INCOME TAXES |
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The Company accounts for income taxes under the liability method as prescribed |
by ASC authoritative guidance. Deferred tax liabilities and assets are |
determined based on the difference between the financial statement and tax bases |
of assets and liabilities using enacted rates expected to be in effect during |
the year in which the basis difference reverses. The realizability of deferred |
tax assets are evaluated annually and a valuation allowance is provided if it is |
more likely than not that the deferred tax assets will not give rise to future |
benefits in the Company's income tax returns. |
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The Company has adopted ASC guidance regarding accounting for uncertainty in |
income taxes. This guidance clarifies the accounting for income taxes by |
prescribing the minimum recognition threshold an income tax position is required |
to meet before being recognized in the financial statements and applies to all |
income tax positions. Each income tax position is assessed using a two step |
process. A determination is first made as to whether it is more likely than not |
that the income tax position will be sustained, based upon technical merits, |
upon examination by the taxing authorities. If the income tax position is |
expected to meet the more likely than not criteria, the benefit recorded in the |
financial statements equals the largest amount that is greater than 50% likely |
to be realized upon its ultimate settlement. At June 30, 2013 and December 31, |
2012 there were no uncertain tax positions that required accrual. |
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(LOSS) PER SHARE |
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(Loss) per share requires presentation of both basic and diluted (loss) per |
common share. Common share equivalents, if used, would consist of any options, |
warrants and contingent shares, and would not be included in the weighted |
average calculation since their effect would be anti-dilutive due to the net |
(loss). At June 30, 2013 and December 31, 2012, the Company had outstanding |
4,175,000 and 0, respectively options, warrants or contingent shares. |
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USE OF ESTIMATES |
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The preparation of financial statements in conformity with generally accepted |
accounting principles in the United States of America requires management to |
make estimates and assumptions that affect the reported amount of assets and |
liabilities and disclosures of contingent assets and liabilities at the date of |
the financial statements and the reported amounts of revenues and expenses |
during the reporting period. Actual results could differ from those estimates, |
and such differences may be material to the financial statements. |
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CONCENTRATION OF CREDIT RISK |
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The Company, from time to time during the periods covered by these financial |
statements, may have bank balances in excess of its insured limits. Management |
has deemed this a normal business risk. |
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CASH AND CASH EQUIVALENTS |
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For purposes of the statement of cash flows, the Company considers all cash and |
highly liquid investments with initial maturities of three months or less to be |
cash equivalents. |
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ACCOUNTS RECEIVABLE |
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Accounts receivable are stated at their cost less any allowance for doubtful |
accounts. The allowance for doubtful accounts is based on the management's |
assessment of the collectability of specific customer accounts and the aging of |
the accounts receivable. If there is deterioration in a major customer's |
creditworthiness or if actual defaults are higher than the historical |
experience, the management's estimates of the recoverability of amounts due to |
the Company could be adversely affected. Based on the management's assessment, |
there is no reserve recorded at June 30, 2013 and December 31, 2012. |
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REVENUE RECOGNITION |
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The Company recognizes revenue from the exploration and production of the |
Company's oil and gas properties in the period of production. |
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PROPERTY AND EQUIPMENT |
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The Company follows the full cost method of accounting for oil and natural gas |
operations. Under this method all productive and nonproductive costs incurred in |
connection with the acquisition, exploration, and development of oil and natural |
gas reserves are capitalized. No gains or losses are recognized upon the sale or |
other disposition of oil and natural gas properties except in transactions that |
would significantly alter the relationship between capitalized costs and proved |
reserves. The costs of unevaluated oil and natural gas properties are excluded |
from the amortizable base until the time that either proven reserves are found |
or it has been determined that such properties are impaired. As properties |
become evaluated, the related costs transfer to proved oil and natural gas |
properties using full cost accounting. There were capitalized costs of |
$1,972,532 and $0 included in the amortization base at June 30, 2013 and |
December 31, 2012, respectively and the Company did not expense any capitalized |
costs for the six months ended June 30, 2013 and for the period March 28, 2012 |
(inception) through June 30, 2012 and for the period March 28, 2012 (inception) |
through December 31, 2012. |
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Management capitalizes additions to property and equipment. Expenditures for |
repairs and maintenance are charged to expense. Property and equipment are |
carried at cost. Adjustment of the asset and the related accumulated |
depreciation accounts are made for property and equipment retirements and |
disposals, with the resulting gain or loss included in the statement of |
operations. The Company has not capitalized any internal costs for the six |
months ended June 30, 2013 and for the period March 28, 2012 (inception) through |
June 30, 2012 and for the period March 28, 2012 (inception) through December 31, |
2012 |
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In accordance with authoritative guidance on accounting for the impairment or |
disposal of long-lived assets, as set forth in Topic 360 of the ASC, the Company |
assesses the recoverability of the carrying value of its non-oil and gas |
long-lived assets when events occur that indicate an impairment in value may |
exist. An impairment loss is indicated if the sum of the expected undiscounted |
future net cash flows is less than the carrying amount of the assets. If this |
occurs, an impairment loss is recognized for the amount by which the carrying |
amount of the assets exceeds the estimated fair value of the assets. No events |
occurred during the six months ended June 30, 2013 and for the period March 28, |
2012 through June 20, 2012 and for the period March 28, 2012 (inception) through |
December 31, 2012 that would be indicative of possible impairment. |
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DEPRECIATION |
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For financial reporting purposes, depreciation and amortization of other |
property and equipment is computed using the straight-line method over the |
estimated useful lives of assets at acquisition. For income tax reporting |
purposes, depreciation of other equipment is computed using the straight-line |
and accelerated methods over the estimated useful lives of assets at |
acquisition. |
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Depreciation and depletion of capitalized acquisition, exploration and |
development costs are computed on the units-of-production method by individual |
fields on the basis of the total estimated units of proved reserves as the |
related proved reserves are produced. |
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Depreciation and amortization of oil and gas property and other property and |
equipment for the six months ended June 30, 2013 and for the period March 28, |
2012 (inception) through June 30, 2012 is $1,970 and $0, respectively and $5,918 |
for the period March 28, 2012 (inception) through December 31, 2012. |
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OTHER COMPREHENSIVE INCOME |
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The Company has no material components of other comprehensive loss and |
accordingly, net loss is equal to comprehensive loss for the period. |
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SHARE-BASED COMPENSATION |
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The Company accounts for share-based payment accruals under authoritative |
guidance on stock compensation as set forth in the Topics of the ASC. The |
guidance requires all share-based payments to employees and non-employees, |
including grants of employee and non-employee stock options, to be recognized in |
the financial statements based on their fair values. |
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GOING CONCERN AND MANAGEMENTS' PLANS |
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As shown in the accompanying financial statements for the period ended June 30, |
2013, the Company has reported an accumulated deficit of $1,773,148. At June 30, |
2013, the Company has current assets of $948,782, including cash and cash |
equivalents of $741,728 and current liabilities of $614,726 but has sold its |
major proved oil and gas property as described in Note 4 and has committed to a |
payment of $1,900,000 on September 1, 2013 as described more fully in Notes 1 |
and 5. |
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To the extent the Company's operations are not sufficient to fund the Company's |
capital and current growth requirements the Company will attempt to raise |
capital through the sale of additional shares of stock. At the present time, the |
Company cannot provide assurance that it will be able to raise funds through the |
further issuance of equity in the Company. |
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The accompanying financial statements have been prepared assuming that the |
Company will continue as a going concern, however, the above conditions raise |
substantial doubt about the Company's ability to do so. The financial statements |
do not include any adjustment to reflect the possible future effect on the |
recoverability and classification of assets or the amounts and classifications |
of liabilities that may result should the Company be unable to continue as a |
going concern. |
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RECENT ACCOUNTING PRONOUNCEMENTS |
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The Company has reviewed all recently issued but not yet effective accounting |
pronouncements and does not believe the future adoption of any such |
pronouncements may be expected to cause a material impact on its financial |
condition or results of operations. |
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SUBSEQUENT EVENTS |
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The Company evaluates events and transactions after the balance sheet date but |
before the financial statements are issued. |